During communications time for the council’s meeting on Feb. 19, 2013, Stephen Kunselman (Ward 3) expressed his view that the CIP should start including the 360 units of public housing managed by the AAHC.

Ann Arbor Housing Commission properties. The size of the dot is proportional to the number of units in the location. (Map by The Chronicle. Image links to interactive map.)

Kunselman’s argument for future inclusion of AAHC properties in the city’s CIP is based in part on the fact that the city of Ann Arbor currently holds the deeds to those properties. But his broader point is that he’s opposed to the city relinquishing title to the properties – as part of a proposal made to the council by AAHC executive director Jennifer L. Hall. Hall has served in that capacity for about a year, and began her Feb. 11 presentation at the council work session with an overview of improvements that AAHC has achieved since she took the post.

Hall’s proposal stems from a need to cover an estimated $500,000 per year funding gap for needed capital investments, coupled with a perceived shift in priorities by the U.S. Dept. of Housing and Urban Development (HUD) in its funding strategy. That shift is somewhat away from subsidized public housing, where rent is subsidized in units owned by a housing commission. [Ann Arbor's situation is apparently unique – because the city, not the AAHC, holds the deeds.] While HUD still allocates several billion dollars nationally for public housing, it subsidizes even more in programs that are based on vouchers. And based on the last three years, the trend is toward more funding on the federal level for vouchers than for public housing.

Some HUD vouchers are tied to a tenant – a person. A potential tenant can take that voucher to a private landlord – and it’s the tenant who receives the rent subsidy, wherever that tenant is able to rent a place to live. Other HUD vouchers are tied instead to privately-owned property, and whoever lives in that private project receives the rent subsidy.

The strategy that Hall will be asking the council to authorize is one that converts AAHC properties to part private ownership, in order to take advantage of project-based HUD vouchers. The private ownership of the AAHC properties will also allow the possible use of tax credit financing to pay for needed capital investments – roofs, boilers, plumbing and the like.

The conversion to project-based vouchers would take place under HUD’s Rental Assistance Demonstration (RAD) program. To set the stage for that, the board of the AAHC selected a co-developer at its Jan. 10, 2013 meeting: Norstar Development USA.

The council would need to take two specific steps in order to proceed with the RAD: (1) approve the contingent transfer of the city-owned AAHC properties to the AAHC; and (2) approve a payment in lieu of taxes (PILOT) for the properties so that they’d owe just $1/unit in property tax per year. As city-owned properties, no property tax is currently owed. Without the PILOT provision, taxes would be owed. Requests to take those steps are expected to come to the council in March. March will also be a period during which public hearings will take place on this issue.

Although Kunselman expressed clear opposition to the idea of transferring the deeds, and Mike Anglin (Ward 5) joined him in expressing significant skepticism, other councilmembers were more positive. They still had several questions about the complexities and the risks associated with the RAD program. [For more background on the AAHC’s efforts to prepare for the RAD program, see Chronicle coverage: “Housing Commission Eyes Major Transition.”]

The Feb. 11 budget work session included the 15th District Court and the capital improvements plan (CIP). A session held on Feb. 25 covered the fund-by-fund budget picture for the next two years. Presentations on those topics are covered in separate Chronicle reports. The council’s discussion of its budget priorities – identified at a planning retreat late last year – is expected to begin at a March 11 work session.

Highlights of Hall’s Feb. 11 presentation to the council included accomplishments of the housing commission over the last year, as well as a description of the properties Hall considers to be in the best condition, contrasted with those in the worst condition. She then walked the council through the key elements of the RAD program. Councilmembers had a range of questions.

Housing Commission Accomplishments

Ann Arbor Housing Commission executive director Jennifer L. Hall has held that position for a bit over a year. The AAHC board made the decision to hire her at its Oct. 19, 2011 meeting. At her first meeting of the board, on Dec. 21, 2011, she sketched out a possible expansion scenario.

Jennifer L. Hall, executive director of the Ann Arbor Housing Commission, addressed the city council at its Feb. 11 work session.

But Hall’s presentation to the city council on Feb. 11, 2013 focused on a path to sustaining the existing units of housing administered by the AAHC. To be eligible for the RAD program, for example, AAHC public housing could not have a “troubled status” designation. Hall was able to report to the AAHC board last fall, at its Oct. 17, 2012 meeting, that AAHC’s public housing operations no longer had a “troubled status” designation from HUD.

The news about AAHC’s public housing program emerging from the “troubled status” designation to achieve “standard performer” status was accompanied by even better news for AAHC’s voucher program (Section 8). After previously having “troubled” status, the AAHC voucher program is now considered by HUD to be a “high performer.”

Some of the data underlying the better status includes the time it takes AAHC to make a public housing unit ready for the next tenant after one tenant moves out – the “unit turn” time. Three years ago, based on minutes from the Jan. 20, 2010 board meeting, one subset of the AAHC public housing units had turn times of as much as 270 days. But that’s improved to 21 days on average, with another 14 days to occupy a unit – for a total of 45 days on average to get a new tenant into a unit after the previous tenant moves out.

Because HUD gives AAHC a rent subsidy for a unit only if it’s occupied, an unoccupied unit translates to zero revenue for AAHC. The overall vacancy rate for AAHC public housing has improved from 95% (12-20 vacant units) to 99% (1-5 vacant units).

Toward the end of the council’s session on AAHC, Chuck Warpehoski (Ward 5) told Hall that he appreciated the leadership she’d shown during her short time as head of AAHC. That helped him have confidence in what she was proposing. And despite his opposition to the proposed conversion through the RAD program, during the “thank you mode” of the presentation, Kunselman added his thanks to Hall, saying that he was most impressed with the turnaround.

Housing Commission Properties

At the council’s Feb. 11 work session, AAHC executive director Jennifer L. Hall gave councilmembers an overview of some of the housing commission’s properties – from the best-maintained units to those with problems.

As an example of the commission’s best-maintained properties, Hall cited Baker Commons, a building with 64 one-bedroom apartments located in downtown Ann Arbor at the intersection of Packard and Main streets. Hall described Baker Commons, which was built in 1980, as the housing commission’s “best, most beautiful building.”

Baker Commons still requires maintenance, however. Last fall, on Oct. 3, 2012, the Ann Arbor Downtown Development Authority board allocated a $260,000 grant for the replacement of the roof on Baker Commons. The work was done in mid-November. Hall also showed the council before-and-after slides of the carpeting in a common area, replaced by marmoleum.

Two-foot contour map of the North Maple Estate property. The highest portion of the site is toward the north (upper left of the image), where no units were built.

She contrasted Baker Commons with units at North Maple Estates on the west side of town. The topography of the site poses challenges, and she described how many of the units have been built on the lowest part of the parcel. There are constant flooding issues, she said.

Based on a 2009 capital needs assessment, Hall estimated the capital investment gap – between what was actually needed and the amount HUD would be giving AAHC for public housing capital repairs – at around $500,000 per year. And the RAD program, with its potential for tax credit financing through privatization, is a way Hall would like to address the capital needs of most of the properties all in “one go.”

North Maple Estates was a touchstone for Ward 3 councilmember Stephen Kunselman’s remarks toward the end of the work session on the housing commission. He grew up on the west side of town, and had friends who lived in the project – which consists of 20 4-5 bedroom detached single-family units, built in 1969. He allowed that he was a little bit “nostalgic,” but noted that the families who lived in North Maple were families he grew up with.

Responding to Hall’s estimated $500,000 annual capital needs for all of the commission’s public housing units, Kunselman contended that much of that was for shorter-term needs, like appliances and boilers. So he wanted to make sure that any solution to cover that funding gap was longer-term – because appliances might need to be replaced again in 10 years. He was concerned that the housing commission might find itself in exactly the same situation 10 years from now.

Kunselman concluded that he would not support the transfer of deeds from the city to the housing commission so that a private entity could become the majority owner of the properties. Kunselman was also not supportive of transferring housing commission employees to the new private entity. When the council is asked to approve the transfer, Kunselman said, “I will say no.”

While other councilmembers expressed concerns and had questions, their outlook was more positive than Kunselman’s. Sabra Briere (Ward 1) allowed that Kunselman is right – it’s all about the people who actually live in the housing commission’s units. But she didn’t want to rule anything out until the council gets to the point of making a determination. She’d look at it with a level of optimism and skepticism.

Christopher Taylor (Ward 3) allowed that there was a certain amount of risk, but he looked at the potential for an “eight-figure” reward. He characterized the approach recommended by Hall as a “hard restart” which the city should consider investigating.

More Background on the Conversion

By way of general background, public housing is supported with government funding – primarily at the federal level – and owned by local government entities. The city of Ann Arbor actually owns the units administered by the Ann Arbor Housing Commission. From the city ordinance establishing the Ann Arbor Housing Commission [emphasis added]:

All deeds, mortgages, contracts, leases, purchases, or other agreements regarding real property which is or may be put under the control of the housing commission, including agreements to acquire or dispose of real property, shall be approved and executed in the name of the City of Ann Arbor. The Ann Arbor City Council may, by resolution, decide to convey or assign to the housing commission any rights of the city to a particular property owned by the City of Ann Arbor which is under the control of the housing commission and such resolution shall authorize the City Administrator, Mayor and Clerk to take all action necessary to effect such conveyance or assignment.

Another kind of government-subsidized housing (Section 8 vouchers) supports individuals who qualify based on their household income. Residents use those vouchers to help pay for private rental housing of their choice. Locally, AAHC manages the Section 8 voucher program for Washtenaw, Monroe, and western Wayne counties. AAHC also manages the public housing units in Ann Arbor.

In her presentation to the council on Feb. 11, Hall explained that a year ago the AAHC had 1,298 vouchers under contract, with a goal to have 1,378 under contract by December 2012. That goal was exceeded, as 1,420 vouchers are under contract as of January 2013.

To a more limited degree, HUD also provides project-based vouchers. For example, the AAHC has an allocation of 37 vouchers that are tied to specific projects, including 20 for the nonprofit Avalon Housing’s Pear Street apartment complex and 12 for assisted living in units managed by Area Agency on Aging 1-B.

Part of the reason Hall would like to convert AAHC’s public housing to project-based vouchers is due to a policy shift by HUD – away from public housing and toward voucher programs.

U.S. Department of Housing and Urban Development: Voucher programs versus public housing programs. Over the last three years, HUD voucher programs (blue) have shown an increasing funding trend compared to public housing (red). Voucher programs are also funded at a much higher level overall – $28.2 billion compared to $5.8 billion in 2012.

The RAD program, which Hall was proposing to the council on Feb. 11, uses the project-based-voucher approach, but also allows entities like the AAHC to partner with private-sector developers on housing projects – something the AAHC currently can’t do.

Overall, Hall sees HUD as more committed to the voucher-based approach in the future, which would provide AAHC with a more reliable funding source for ongoing operations.

But the RAD project-based-voucher approach also allows public housing entities to tap private investment for needed capital improvements on existing public housing – by converting current public housing units into units that are owned by a public/private partnership.

Based on a 2009 capital needs assessment, Ann Arbor’s public housing stock would need about $40,000 per unit in repairs and renovations over the next 15 years. But based on current funding levels for public housing, HUD would provide only about $18,000 per unit over that period – or possibly less. The gap works out to $22,000 per unit. For the AAHC’s 360 units, that’s $8 million over the next 15 years, or in round numbers, about $500,000 a year.

Hall’s plan is to seek a range of financing in connection with the RAD conversion. But the main source is likely to be low-income housing tax credits (LIHTC), awarded through the Michigan State Housing Development Authority (MSHDA). Tax credits are awarded for projects, and are in turn sold to investors who provide funding for construction or renovation. Depending on market conditions and other factors, pricing for those credits could range from roughly 85-95 cents on the dollar. From a recent report by the Congressional Research Service:

Typically, investors do not expect the project to produce income. Instead, investors look to the credits, which will be used to offset their income tax liabilities, as their return on investment. The return investors receive is determined in part by the market price of the tax credits. The market price of tax credits fluctuates, but in normal economic conditions the price typically ranges from the mid-$0.80s to low-$0.90s per $1.00 tax credit. The larger the difference between the market price of the credits and their face value ($1.00), the larger the return to investors [.pdf of "An Introduction to the Low-Income Housing Tax Credit" from the Congressional Research Service.]

These are the Ann Arbor public housing properties being considered for conversion, that were included in AAHC’s RAD application:

• Baker Commons: 64 one-bedroom units
• Green Baxter Court: 24 townhomes with a total of 65 bedrooms
• Hikone: 30 townhomes with a total of 82 bedrooms
• Lower Platt: 4 houses, each with 5 bedrooms
• Miller Manor: 104 units with a total of 108 bedrooms
• Evelyn Court: one single-family home with three bedrooms
• Garden Circle: one single-family home with three bedrooms
• Maple Meadows: 30 townhomes with a total of 82 bedrooms
• North Maple Estates: 20 single-family homes with a total of 85 bedrooms
• North Maple duplexes: Two three-bedroom duplexes, for a total of 12 bedrooms

In addition to choosing Norstar Development USA as a co-developer, AAHC has already completed several other steps needed for the RAD initiative. Three entities have been hired as consultants to help handle various aspects of the process. Avalon Housing, a local nonprofit that focuses on supportive services for affordable housing, was hired as a consultant to take the lead in applying for low-income housing tax credits (LIHTC). [.pdf of Avalon Housing contract] The AAHC had originally hoped to apply for a February round of credits, but given the short timeline, has decided to wait until the August round.

From left: Ann Arbor Housing Commission board members Ron Woods and Christopher Geer attended the city council work session on Feb. 11. Other board members are Leigh Greden, Marta Manildi and Gloria Black.

Also acting as a consultant is Tom Davis of Recap Real Estate Advisors. [.pdf of Recap Real Estate Advisors contract] Davis will provide advice about compliance with HUD regulations as well as financial transactions that AAHC might pursue, including the application for low-income housing tax credits.

AAHC will also be getting help with this transition from Rochelle Lento, an attorney with Dykema who specializes in LIHTC deals. [.pdf of Dykema contract] Lento has already been working with AAHC on a pro bono basis, and assisted with changes to bylaws and articles of incorporation for an AAHC nonprofit subsidiary – the Ann Arbor Housing Development Corp. – which will serve as the entity that enters into partnerships for these RAD projects. Those changes were approved by the AAHC board at its Nov. 14, 2012 meeting.

Council Questions: Highlights

At the Feb. 11 work session, councilmembers had a number of questions and concerns. Here are some highlights.

Council Questions: Norstar?

Sally Petersen (Ward 2) asked about Norstar Development USA – the co-developer that AAHC has selected: What’s in it for them? Hall explained that Norstar’s business is doing housing development. Norstar does its own housing development, but also hires itself out – just like an architect or an engineer would – to do projects. Norstar’s staff would share the developer fee, and get paid to do the work of putting the project together, Hall explained.

Norstar gets paid to hire architects and engineers, complete the due diligence, and oversee construction. “They’re a developer – that’s their business,” Hall explained. Norstar has expressed to the Ann Arbor Housing Commission that they’re not necessarily interested in being involved for the full 15-year period imposed by the IRS compliance for affordability of the housing units involved in this type of deal. The deal could be structured in a way for Norstar to exit sooner than 15 years.

Hall explained that Norstar’s business is more on the development side, as opposed to the property management side. Norstar has a property management company that it works with, but that company is not a part of Norstar, Hall told the council.

Council Questions: Why Now?

Petersen noted that the LIHTC-type of financing that would be used has been around since 1986. She asked Hall to give two or three reasons why Ann Arbor should do this now?

Hall cited the opportunity provided through the RAD program as the main reason for acting now. Through RAD, Hall explained, HUD is promising new, additional project-based vouchers to be attached to the AAHC units. “That’s the number one reason to do it,” Hall said.

Council Question: Pre-development Funds?

Sumi Kailasapathy (Ward 1) asked Hall about the estimated pre-development costs of around $100,000-$200,000. That would cover all the due diligence. Kailasapathy wanted to know how that cost would be covered.

Hall explained that HUD will allow the AAHC to take the first $100,000 out of its own budget. The rest is being negotiated with Norstar, Hall said. Normally, the developer would pick up those costs as risk, as part of the deal. So that’s all being negotiated right now, Hall said.

Hall also told the council that AAHC would be applying for pre-development funds from grant sources. But Hall confirmed that the first $100,000 would be coming out of AAHC’s existing budget.

Council Question: All or Just Some Units?

Christopher Taylor (Ward 3) wanted to confirm that all of AAHC’s units would be included in the proposal. Hall indicated that was right, but noted that it would likely happen in two phases.

AAHC was approved for around 280 units in its initial application, she said. Now that the developer, the architect and the contractor have looked at the housing commission’s properties, they have some different ideas about the properties in the initial application. So AAHC has talked to HUD about modifying or amending its initial application.

AAHC is looking at a rehab package for the first phase. For the second phase, there’s consideration of some demolition and new construction. But that’s too much work to undertake right now, Hall said, so there would likely be an application for a second phase next year.

Council Question: Big Deal? Promises?

Taylor asked Hall how big a reset this would be, if this all works out. “Gigantic,” Hall answered. “There is no other way to reinvest and keep these units in the condition they need, unless the city puts a significant chunk of funding in every single year. I don’t know how we would do it.”

Taylor followed up by asking Hall what gave her confidence that HUD’s promise of increases to this type of voucher program would be kept.

Hall told Taylor that she personally attaches skepticism to everything that HUD does, but she said she didn’t know how HUD would get out of the contract. Rochelle Lento, an attorney with Dykema who specializes in LIHTC deals, clarified that when HUD assigns the project-based vouchers with AAHC, they’ll enter into a 15-20 year HAP (housing assistance payment) contract, and that will be binding on HUD. Like any federal grant contract, she said, it’s going to say that it’s subject to appropriations. But the federal voucher program (HAP) has been much more stable over the last 15-20 years than the public housing program, Lento said.

Part of the mentality for HUD, Lento added, is to “get out of the public housing business,” and through the voucher program to have the private sector shoulder some of the responsibility.

Council Question: Risk?

During back-and-forth between Kunselman, Hall, and Lento, Lento was asked to identify the risk to the city. She indicated that the primary risk would be if the property were to be poorly managed and deteriorated. But the city has some control over that, she said, because “you are the management company.”

The other risk she described is if the construction and rehabilitation work is not completed in a timely fashion. The key to that, she said, is having a good general contractor.

Council Question: Tax Credits?

Taylor wanted to know how the tax credit investment made by some entity with a tax liability achieves the privatization goal. Lento told Taylor this was achieved in two ways. One way is that the private investor would necessarily be involved in the due diligence, making sure that the projects actually get constructed or rehabbed. As part of the ownership group for 15 years, she continued, the investor monitors and oversees the project to make sure they’re well-managed and well-maintained.

Taylor ventured that the participation of a tax credit investor in the ownership group is not as a silent partner. Lento indicated that the investor would require regular reporting, for example on the status of the tenant population. Especially for the first 10 years, if the property is not maintained as affordable within all the provisions of the IRS tax code, the tax credits could be jeopardized.

Taylor summarized his understanding of the situation by saying that HUD is getting the benefit of third-party oversight – which is incentivized by linking the tax credits to compliance with the IRS regulations.

Council Question: Why Not Avalon? Philosophy?

Given the complexity of RAD, and given the track record of local affordable housing developer Avalon Housing, Kunselman wanted to know why the city wouldn’t just sell the AAHC properties to Avalon. Lento explained that Avalon can’t take advantage of the RAD program in the same way that the AAHC can. The RAD program is only available to housing authorities, she said.

Hall clarified that there are two parts of the equation. There’s the operating subsidy, which is tied to the vouchers. And then there’s the low-income housing tax credit investment. Avalon could go out and get tax credits, Hall allowed, but Avalon would not have the ability to have the project-based rent subsidy in the same way that AAHC can.

However, Hall allowed that Avalon might be able to make it work.

Kunselman alluded to the fact that Avalon had not been able to bring the Near North affordable housing project to fruition. He concluded that there was, in fact, a lot of risk associated with developing affordable housing.

Lento pointed out that LIHTC was the most successful approach to developing affordable housing nationwide. Kunselman wanted to know how many affordable units LIHTC had generated in Ann Arbor. Ann Arbor is more challenging because of land acquisition, Lento said. Kunselman ventured that the only reason Hall’s proposal is feasible is that the land cost is zero – because it’s public land being turned over.

Lento didn’t necessarily agree that it’s “free land,” but Kunselman insisted that it’s “land that the city owns, land that the city bought – it’s public land.” That’s what makes him skittish, he said, because the city would be losing a lot of control. But he allowed that it’s a philosophical issue.

On a philosophical level, Hall ventured that it might be best to have the property owned by a nonprofit whose goal and mission is to be an affordable housing owner – as opposed to the city. As an example, she gave the former Y site at Fifth and William, which the city acquired from the Y. For a short time, the city operated the 100 units of affordable housing there. Then the building was condemned and eventually demolished, but new affordable housing has not been developed there. Views on all this change, Hall said.

Council Question: Where to Locate Affordable Housing?

Marcia Higgins (Ward 4) took up the issue of the old Y lot. She described it as a poorly-used site, with deplorable conditions. She said everyone seems to forget about that part. She also contended that since that time, the city has learned that putting all the needed supportive housing in the middle of downtown is probably not the most efficient use of funding.

Higgins said the alternative that Hall was presenting was very interesting, and she wished this had been presented sooner. She praised Hall for taking the initiative and appreciated Hall’s hard work. Margie Teal (Ward 4) joined Higgins in expressing her thanks to Hall, and to the AAHC board.

Speaking to the issue of where to locate affordable housing, mayor John Hieftje indicated agreement with Higgins’ position that a large installation like the former Y building should not be located in the downtown. He described downtown Ann Arbor as bearing most of the burden of homelessness in Washtenaw County. To single out the downtown of the largest city in the county seemed unfair to him. The fact is that the clientele of the Delonis Center shelter comes from across Washtenaw County and beyond, he said. So it might be wiser to keep from concentrating that population in the downtown area.

Hieftje noted there was some sentiment on the city council to put the former Y site on the market and sell it. [It's currently used as a surface parking lot, as part of Ann Arbor's public parking system. A resolution, sponsored by Hieftje and Kunselman, is on the March 4, 2013 city council agenda to direct the city administrator to issue an RFP for brokerage services to sell the parcel.] If there were funds left over from the sale of that property, some of it could be put toward affordable housing, Hieftje said.

Hieftje told Hall he appreciated her creativity.

Addressing the appropriate location of affordable housing, Sally Petersen (Ward 2) spoke from her perspective serving on the city’s disabilities commission. She didn’t want the city to become a place where it’s not possible for disabled and elderly people to live downtown.

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Tony VanDerworp, left, talks with Washtenaw County commissioners Conan Smith and Dan Smith before a May 5, 2011 working session. VanDerworp is director of the economic development & energy department, which manages the county's brownfield program.

The board had been asked at its May 4 meeting to give initial approval of a $1 million grant application and $1 million loan from the Michigan Dept. of Natural Resources and Environment, for brownfield cleanup at the proposed Packard Square development. The board was also asked to authorize designation of the county’s full faith and credit as a guarantee for any loan that might be awarded, up to $1 million.

It was that guarantee that raised concerns among some commissioners, who were uncomfortable putting the county potentially on the hook for a private developer – especially as the county faces a $17.5 million deficit over the next two years.

Also was a concern that the developer – Bloomfield Hills-based Harbor Companies – had not paid off back taxes owed on the site.

Commissioners discussed having county staff talk with representatives of the city of Ann Arbor, to ask whether the city would be willing to back the loan, rather than the county. The site plan and brownfield plan for Packard Square had been approved by the Ann Arbor city council on Monday, May 2.

Subsequent to the May 5 working session, the county board announced that it will hold a special working session on Tuesday, May 17 to continue discussion of the Packard Square project and a possible change to the county’s full faith and credit policy. That meeting is set to begin at 6:30 p.m. at the Washtenaw County administration building, 220 N. Main St. in Ann Arbor.

In addition, the Packard Square grant and loan application, along with the project’s brownfield plan, is on the agenda for initial approval at the board’s May 18 meeting. A public hearing on the brownfield plan is also scheduled that night.

Packard Square Brownfield Proposal

Brett Lenart of the county’s economic development & energy department, which manages the county’s brownfield redevelopment, began with an overview of the brownfield program. To date, 19 brownfield development projects have taken place in six communities, including Ann Arbor, Ypsilanti and Saline. Projects include the Toyota Technical Center, Zingerman’s Deli, and the Dexter Wellness Center, among others.

Lenart said brownfield incentives have resulted in $323 million in new investments for local projects, and have helped to create or retain 3,500 jobs. Tax revenues that the county will receive in coming years because of those investments are significantly higher than what the taxes would have been without the brownfield redevelopment, he said.

Were it not for the brownfield incentives, these sites would likely not be redeveloped, Lenart said. They are difficult projects – that’s why the incentives are appropriate, he said.

Lenart also noted that the incentives will likely be eliminated under proposed state tax reforms, as part of current budget bills in Lansing. It’s not a tool they’ll be able to use much longer.

Specific to the Packard Square proposal, Lenart noted that the 6.5-acre site – the location of the former Georgetown Mall – includes land contaminated by a dry cleaning business that operated there. It’s been standing vacant and has little potential for reuse, he said.

The developer is proposing a $48 million mixed-use development, with retail and office space along with 230 apartments.

The proposed plan includes $5.1 million of eligible tax increment financing (TIF) activities, captured over a 14-year period. This total includes an estimated $2.4 million in developer-financed costs and $700,000 in interest, as well as $1 million from a state grant and another $1 million from a state loan. Also covered under the plan are $358,222 to be paid to Washtenaw County for brownfield program administrative support (about $25,000 each year over 14 years), and an estimated $1.1 million that will be deposited into the county Local Site Remediation Revolving Fund.

The project is expected to increase the taxable value of the property by an estimated $7.3 million – that’s an increase of about $500,000 in additional tax revenue to several taxing jurisdictions after the TIF repayment period.

Lenart said the county staff was recommending that the board approve the $1 million grant application from the Michigan Dept. of Natural Resources and Environment, as well as the $1 million loan from MDNRE. The combination of the grant and loan would reduce the period of the TIF from 18 to 14 years, Lenart said, reducing the total TIF-captured funds by $2.5 million.

Lenart noted that the county would require that the developer obtain a letter of credit from a bank, as assurance that the county would be able to secure repayment. If there’s a risk, he said, it’s that the county will need to be careful about the terms and conditions of the letter of credit, to ensure it’s in their best interest and that their funds are protected.

Ideally, the board would approve holding a public hearing on the brownfield proposal at its May 18 meeting, he said, and give final approval at its meeting on June 1.

Packard Square: Commissioner Discussion

Conan Smith began by saying that Wes Prater had been right to urge the board to bring this discussion to a working session, before considering it for a vote. [At their May 4 meeting, commissioners had debated whether this project had a significant enough financial impact to the county to require it, under board rules, to first be taken up at a working session. Smith had argued against that move at the time.]

Smith described Packard Square as a badly needed project in Ann Arbor. It’s in an area where affordable housing is needed, on a bus line and within biking distance to downtown. It could be valuable to the economic diversity of the city and the county, he said. The board should rely on the county brownfield redevelopment authority’s review of the project, and take their advice to approve the grant and loan application, Smith said.

It’s incumbent on the board to protect the county’s interests, first and foremost, Smith said. They have tools to help development – through authorizing the county’s full faith and credit and by bonding, among other means – and that’s especially important in areas that are environmentally challenged, like the Packard Square property, he said. There’s a strong public interest in supporting these activities.

That said, the board needs to take every conceivable protection to secure the county’s long-term financial interest, Smith said. His understanding is that the letter of credit offers such protection. He asked for additional details about what risk the county might be taking with this project.

Lenart explained that the letter of credit would be negotiated between the developer and the financial institution, in an amount specified for the benefit of the county. It would allow the county to access the funds under certain circumstances. In addition, the county would have a contract with the developer that would describe how the TIF revenues would be used. For example, the county could specify that they receive TIF revenues for repayment, before those revenues would be available to reimburse the developer.

It would be crucial to structure those two documents – the letter of credit, and the county’s contract with the developer – in concert, Lenart said, especially in reference to milestones and benchmarks that would allow the county to access the letter of credit.

Curtis Hedger, the county’s corporation counsel, stressed that the county gets to negotiate terms – they’ll need to feel comfortable with the agreement before they sign. And it’s key to have the letter of credit be in place for the entire length of the TIF. He also noted that the bank would investigate the developer’s assets very carefully before issuing the letter of credit, which adds a layer of assurance.

One risk that Hedger cited would be if the developer goes bankrupt within 90 days of signing the letter of credit. In that case, a bankruptcy court could invalidate the letter, he said – that’s a major risk. That risk is mitigated by the fact that they’d be getting both a grant and a loan from the state, he said. There’s enough work that could tap the grant funds first, allowing them to pass through the 90-day period without expending additional funds. In that case, if the developer goes bankrupt, the county could simply return the unused loan to the state, he said.

The key thing in the letter of credit is that the terms are crystal clear regarding when the county can access those funds, if necessary, Hedger said, including a detailed list of situations that would trigger the county’s right to collect. If there’s a bankruptcy, the county would be looking to the bank – not the developer – to recoup its money.

Hedger said he’d also recommend including an acceleration clause in the letter of credit, which would state that even if there’s a minor default – like a $50,000 payment – the county would have the right to ask for the entire amount of the loan. The county would be looking to the bank to make Washtenaw County whole, and the bank would have to in turn deal with the developer. That’s why there’s a lot of front-end due diligence by the bank, Hedger said.

There’s always a risk when the county issues its full faith and credit, Hedger said – no one can predict the future. But with a letter of credit that’s both clear and covers a sufficient time period, he added, they should be in good shape.

Lenart added that the county staff would oversee the activities funded by the $2 million in state funds. That adds a level of control about how and when funds are expended, relative to the letter of credit, he said.

Smith then asked about the county’s general policy toward issuing its full faith and credit. Its policy now is focused almost exclusively on public works projects, he noted. He asked Hedger for recommendations about how the policy might be revised.

Hedger said that currently, the county uses its full faith and credit primarily when it issues bonds for county projects or for projects within other local municipalities. Since there will likely be more public/private partnerships in the future, Hedger said, he’d recommend a policy that gives the county more flexibility. It would also be important to be clear that the county won’t do these types of deals unless they lock down some type of security, he said, like a letter of credit.

Packard Square: Commissioner Discussion – Unpaid Taxes

Wes Prater then began his questioning by clarifying that the developer was an LLC. He asked whether the firm owed any taxes. Lenart answered that the taxes aren’t up to date, but that this brownfield agreement would be an effective way to resolve that situation.

[Responding to a query from The Chronicle, county treasurer Catherine McClary reported that Harbor Georgetown LLC owes 2009 taxes totaling $178,025.26 and 2010 taxes of $159,845.57, if paid on or before May 31, for a total of $337,870.83. Interest increases each month. The 2009 taxes are in forfeiture – that is, if not paid by next year, the property would face foreclosure.]

What is the county becoming? Prater asked, exasperated. He likened it to the federal bailout of General Motors, and asked what kind of collateral the company had. “This is kind of outrageous, if you ask me,” he said.

Anne Jamieson-Urena, director of brownfield and redevelopment incentives for AKT Peerless Environmental and Energy Services, was on hand as a representative for the developer. She reported that the developer was getting a 40-year loan backed by the U.S. Dept. of Housing & Urban Development (HUD), which she described as very secure financing for the project. HUD won’t close on the loan until the developer’s taxes are paid, she said. HUD also requires that they prove they have the means to clean up the site – that’s why they need the brownfield deal. Both the city of Ann Arbor and the county brownfield redevelopment authority have indicated they won’t support the project unless all back taxes are paid, she said.

Jamieson-Urena described it as a difficult site to clean up, and a complicated project with lots of moving parts. She said she realized the county board was coming in at the middle of the discussions.

Prater cut her off, saying he wasn’t interested in the developer’s process – his concern is for the county and only the county. It looks like the developer wants the county to pay for the site cleanup so that they can get a loan, he said. The LLC isn’t willing to invest its money, he said, yet they want to get the profits – and taxing authorities will be sacrificing 14 years worth of tax revenues. Prater said he’s OK with the TIF, but not with the state grant and loan being backed by the county. That’s too risky, he said.

When Jamieson-Urena noted that the grant and loan allow the TIF period to be reduced from 18 to 14 years, Prater replied, “I may be dead – and half of this group may be dead by then!” If the developer isn’t willing to reach into his own hip pocket for funding, the county shouldn’t help, he said – or perhaps Ann Arbor should offer its full faith and credit for the project instead.

Dan Smith also commented on the unpaid taxes. He said he didn’t want to change the rules in the middle of the game, but the first thing the developer should have done was to take care of those back taxes. He’s disappointed that the project is this far along and there’s still a tax issue.

When Jamieson-Urena reported that the developer has been making payments, Smith replied that you either pay your taxes or if you don’t like it, take it up with the tax tribunal. The county needs a policy making it clear that taxes need to be current before a project chews up so much staff time and resources.

Smith then said he shared Prater’s concerns over the loss of tax revenue during the TIF period. He also wondered about the need for housing. There seems to be plenty of available housing near Ann Arbor, he said, and it wasn’t clear that they need to be encouraging more construction at this time. Even so, Smith said he thought he’d find a way to support the project, despite his concerns.

But before they move ahead, Smith said the county needs to develop a policy regarding use of its full faith and credit on projects like this. He has concerns that they might be hanging their hat on technicalities in the letter of credit – if they miss something, suddenly they’re more liable.

Smith also noted that they’ve seen numerous banks fail – some for which they wouldn’t have thought it was possible. That seems to have been quickly forgotten, he said. Having a letter of credit, even from a major bank, doesn’t eliminate risk.

Smith said he sits on the board of the Northfield Township Downtown Development Authority. They were given rosy projections about revenues they’d be receiving from a TIF, but those haven’t materialized. People seem to have conveniently forgotten the last three years of history, he said.

Yousef Rabhi asked what would happen if the bank issuing a letter of credit goes under. Hedger said he’d need to look into that and report back.

Rabhi then clarified that the project couldn’t move forward unless taxes were paid. Lenart replied that they couldn’t do the state grant or loan unless taxes were paid in full. Nor would the developer be able to secure the $48 million in financing it needs, he said.

Dan Smith said the issue isn’t about whether the taxes would eventually be paid – it’s that the project has moved ahead so far while still owing taxes. “It’s just not right, is the bottom line,” he said. Lenart agreed, but said it’s also a reflection of the fact that the property isn’t functioning well in its current condition.

Alicia Ping also expressed concern over the unpaid taxes – they should develop a policy on this, she said.

Rabhi, who’s a member of the county brownfield redevelopment authority board, said that group should discuss developing a policy that would require taxes to be paid before a project comes to the county board for approval.

Packard Square: Commissioner Discussion – Policy, Public Benefit

Ping also asked whether the city of Ann Arbor was ever asked about offering its full faith and credit, rather than the county. No, Lenart said, they weren’t asked. The county, through its brownfield redevelopment authority, is the only entity that could authorize the brownfield TIF. If the city, rather than the county, were to give its full faith and credit, it would add a contractual layer to the agreement with the state, he said.

Ping then asked about the staff oversight required – how would that be compensated? Lenart said the county could pull off a fee of up to 3% out of the $2 million grant/loan – or roughly $60,000 – to cover administrative expenses. That would pay for county staff time as well as a consultant’s work, who would have more expertise to oversee the work. An additional $25,000 annually would be paid to the county from TIF revenues. Tony VanDerworp, director of the county’s office of economic development & energy, said it would also reimburse their staff expenses up to this point. Ping said that amount seemed low, to cover all those costs.

Ping said her main concern was offering the county’s full faith and credit, and she’d like to see whether Ann Arbor would be willing to do that instead.

Brett Lenart of the county's economic development & energy office.

Lenart said if the county won’t back the loan, then the city would need to apply for the state grant and loan with its full faith and credit. If the city is unwilling to do that, they’d need to resize the brownfield plan, he said.

Barbara Bergman wanted to know what public benefit would be derived from the project. Aside from the tax revenue, what’s in it for the citizens – is it just access to affordable housing?

Lenart cited as benefits the addition of market-rate apartments, and the removal of about 2,500 tons of contaminated soil.

Removing contamination was certainly a benefit, Bergman said. As for the housing, does the project fit the city’s goals? Lenart noted that the city council had recently approved the project’s site plan and brownfield plan. Anne Jamieson-Urena said the apartments would likely be in the $700 to $1,300 range. Responding to a question from Bergman, she said it wasn’t specifically targeting the student market. She described other aspects of the project, which will include retail shops and office space.

Bergman said she’d still like to know what $700 would buy – it wasn’t clear to her if this was the kind of housing needed by the population that has a hard time finding affordable places to live.

Conan Smith pointed out that the board had eliminated the county’s planning staff, which in the past would have been able to evaluate the project. If the commissioners wanted that kind of evaluation, they needed to fund staff resources accordingly. If not, they needed to focus on the brownfield piece and the financing, he said. That piece is focused on the environmental reclamation of the site, he added. Working hand-in-glove with the private sector, they could ensure the site’s cleanup – that’s what the brownfield program is all about.

As a result of the project, they’ll get additional tax revenues from the project and a cleaned-up property, while the developer benefits from getting an asset, Smith said. The city has already vetted the project, he added, and he felt the commissioners should rely on the city’s judgment.

Kristin Judge noted that the county will be losing tax revenues because of the TIF – why doesn’t that show up in the staff memo’s report on the project’s financial impact?

VanDerworp replied that they assume the site wouldn’t be redeveloped without the brownfield incentives to remove and remediate contaminated land, and demolish existing structures. Without the incentives to cover the $5.1 million in cleanup costs, it’s cheaper to buy land elsewhere, he said. The incentives are designed to kick-start redevelopment. And when redevelopment occurs, he added, the county and other taxing entities will eventually see higher tax revenues than they otherwise would.

Judge pointed out that there isn’t any other property available like this is Ann Arbor, so the developer has incentive to put a project there. She also noted that if the Washtenaw Avenue corridor improvement authority (CIA) is approved, that’s another hit to tax revenue. [See Chronicle coverage: "What Does Washtenaw Corridor Need?"]

Jamieson-Urena replied that a CIA is different from a TIF. With a TIF, the county would still be collecting the baseline tax revenue – it’s only the increase caused by the appreciation of the property that will be going to the developer, she said.

VanDerworp told commissioners that they’ll be holding a working session in the future on the CIA. The Packard Square project is different, he said, in that it’s focused on brownfield cleanup.

Responding to a question from Judge, Jamieson-Urena said the developers don’t intend to operate at a loss, but that the return on their investment will be minimal. They’re looking at huge cleanup costs, she said, as well as demolition and other expenses. So Judge asked whether the project made business sense. Jamieson-Urena replied that the brownfield program is in place to help get blighted properties back on the tax rolls.

Judge wondered whether the brownfield plan could be approved without the loan. It could, Lenart said. Judge said she wasn’t comfortable with the county backing the loan. However, she supports the brownfield cleanup, and said the project itself looked beautiful.

They can proceed without the loan, Lenart said, but it will extend the project. The letter of credit is intended to provide a level of comfort in protecting the county, he said. If the board approves that, then they’ll cut the length of the TIF and see higher tax revenues four years earlier.

Ronnie Peterson asked how the project’s timeline would be affected, if the board of commissioners directed staff to return to the city and ask that the city provide its full faith and credit, as Ping had suggested. Lenart said it would delay the state’s approval of brownfield incentives. Jamieson-Urena added that it could put the whole project in “tremendous jeopardy.”

Peterson said he supports economic development, but generally for commercial and industrial projects – not residential. He’d hate to see every residential developer come to them for this kind of support, noting that there are a lot of challenged properties in the county. He asked when the developer needs final approval.

The developer has been working with the city since January, Jamieson-Urena said, and received approval from the city council on May 2. The county’s brownfield redevelopment authority board has also approved it, she reported. They’ve already given the Michigan Dept. of Environmental Quality a draft application, she said – it usually takes MDEQ two to four months to approve a project, after it’s formally submitted.

All they’re asking is that the county board allow them to proceed, she said. They’re not requesting terms of the loan at this point, she noted. Ideally, they’d like to start demolition in the fall of 2011.

Peterson asked whether that meant the project could move forward without the county’s granting its full faith and credit. Lenart replied that the application to MDEQ includes a question asking whether the county would accept the loan and back it with its full faith and credit. They would need to answer that question when they apply, he said. Lenart also noted that several years ago the county had applied for a similar loan backed by its full faith and credit, but that project had never moved forward.

Peterson characterized this request as very unusual, saying it’s not the role of government to use its credit in this way – there are other needs that are more important. It’s also apparent that the developer doesn’t have any skin in the game, he said. The developer is doing this project on credit, yet plans to reap the harvest. He said he could support the brownfield TIF, but wouldn’t support backing a loan for a private developer. That’s not the county’s role, he said.

Bergman recalled that the brownfield project in Ann Arbor – Broadway Village at Lower Town – hasn’t materialized. It’s just empty land behind a fence, she said. Lenart noted that some work has occurred, but the TIF isn’t activated so no money has changed hands.

Conan Smith said it goes back to the issues he raised at the beginning of their discussion: (1) what will they do with this project; and (2) what’s their policy about providing support for private development. He hoped they would support private entities – there will likely be more opportunities for public/private partnerships in the future. One reason these incentives are available is because profit margins are so thin, especially for contaminated sites, he said. Otherwise, dilapidated properties would remain a blight. He noted that while most brownfield projects in Ann Arbor are residential, the county board has also approved many commercial or industrial brownfield projects in other communities.

This is an opportunity to do something good for the community, Smith said. The board needs to ensure that the county is protected, and he thought they had the in-house expertise to do that. They needed to craft a very tight policy to allow them to use this tool to work with private developers, perhaps in a limited way.

Regarding the Packard Square project specifically, Smith supported moving quickly. He said he’s seen projects go down because of delays. Smith also questioned whether requiring property owners to pay back taxes would have a chilling effect on development. Perhaps it would cause developers to choose other properties, he said, leaving the blighted properties to remain undeveloped.

The brownfield redevelopment authority recommended action on this project, and there’s clearly been precedent for backing a loan, Smith said. With the right protection, he supported moving ahead with the project. Then the board should have a robust discussion to craft a policy to guide future projects.

Rob Turner said he generally supported brownfield projects, noting that it would provide jobs for his colleagues in the construction industry. However, he was concerned about the unpaid taxes, and had serious concerns about using the county’s full faith and credit to back a loan for a private developer. He had invested in a development planned along Ann Arbor-Saline Road in the early 1990s, and lost a significant amount when the project went under.

Turner also recalled the savings and loan crisis – that financial sector went completely under, so even with a letter of credit, there’s risk.

He supported Ping’s suggestion of going to the city of Ann Arbor and asking if they’d back the loan. He said he’d love to see the project happen, “but I think it needs to be done without us.”

Prater pointed out that the county’s equalization director, Raman Patel, had told the board that millions of dollars in tax revenue were being diverted from the county, while the county faced a $17.5 million deficit over the next two years. And seeing what’s happened in the financial industry, they need to be cautious, he said. People have tried to live off the government, and now it’s coming home to roost. Federal and state funding is drying up, and the county needs to tighten its belt and figure out how it can provide services without outside funds. “Taking actions such as this are not going to help our cause,” he said.

Conan Smith replied that most of the tax diversion that Patel reported occurs through downtown development authorities (DDAs) and local development finance authorities (LDFAs), which are different from brownfield TIFs. DDAs and LDFAs are designed to capture tax increases tied to market forces, he said, while brownfield TIFs are designed as an incentive to increase the tax base.

Next Steps

Commissioners then discussed the possibility of holding another working session on this topic, and asked staff to draft a policy regarding use of the county’s full faith and credit for this kind of project. Hedger said his concern was about producing such an important policy too quickly, but he noted that they could always choose to amend it later.

On Wednesday, May 11, the county issued notice of a special working session on this topic, slated for Tuesday, May 17 at 6:30 p.m. The agenda includes an update on the Packard Square project, and a proposal for a full faith and credit policy. The meeting will be held at the county administration building’s boardroom, 220 N. Main St. in Ann Arbor.

Present: Barbara Levin Bergman, Kristin Judge, Ronnie Peterson, Alicia Ping, Wes Prater, Yousef Rabhi, Conan Smith, Dan Smith, Rob Turner.

Absent: Leah Gunn, Rolland Sizemore Jr.

Jennifer S. Hall, chair of the Ann Arbor greenbelt advisory commission, presided over her last regular meeting on May 11. Her term ends on June 30; GAC's June meeting will be a joint session with the city's park advisory commission.

Instead of holding their regular meetings in June, the greenbelt and park advisory commissions have scheduled a joint working session to discuss common goals and priorities – they last met jointly in April 2010.

Term limits were raised in another context during Wednesday’s meeting, when commissioners were asked to recommend that city council restate current GAC membership terms. Mary Fales of the city attorney’s office has been working on the revisions, after inconsistencies were discovered for current appointments. For example, a term for Ecology Center director Mike Garfield ended on June 30, 2009. Though he continued to serve, he was not officially reappointed to another three-year term until Sept. 21, 2010. Under the resolution recommended by GAC, all terms would end on June 30, over staggered years.

Also at Wednesday’s meeting, commissioners got an update about Michigan budget-related legislation that would cut tax credits for farmers. They were also briefed by staff about changes to the federal Farm and Ranchland Protection Program – the city has received millions of dollars worth of FRPP grants over the years to offset the cost of development rights purchased in the greenbelt.

Ginny Trocchio, support staff for the greenbelt program, told commissioners that June 16 is the date for a greenbelt celebration, starting at 5:30 p.m. at the Braun farm in Ann Arbor Township, which was added to the greenbelt in 2010. The event will be open to the public, and will include a presentation to highlight the program’s accomplishments.

Dan Ezekiel, GAC’s vice chair, reported that the subcommittee he’s leading to look at possible changes in the greenbelt boundary will be making a proposal at the commission’s July 13 meeting.

And in its final action of the meeting, commissioners emerged from a closed session and voted to recommend that Ann Arbor city council make a $127,200 offer for the purchase of development rights on a property within the greenbelt. Before appearing on the city council’s agenda, details of these greenbelt acquisitions are not made public – parcels are identified only by their application number.

Farmland Tax Credits

At the commission’s March 9, 2011 meeting, Tom Bloomer – a greenbelt commissioner and farmer who owns Bur Oaks Farm in Webster Township – gave an update on proposed state legislation that would impact farmers. GAC chair Jennifer S. Hall had asked him to provide more details at their next meeting. Because the April meeting was canceled, Bloomer’s first chance to brief the commission again came on Wednesday.

The state’s Farmland Preservation Program – under Public Act 116, the Farmland and Open Space Preservation Act – provides tax credits to farmers. As part of his overhaul of the state’s tax structure, Gov. Rick Snyder has proposed eliminating or reducing most tax credits. The changes would not only affect high-profile tax credits for the film industry, but also would cut tax credits in several other sectors, including brownfield redevelopment, historic preservation, and farmland.

At Wednesday’s meeting, Bloomer distributed a list of talking points regarding the farmland tax credits, and urged people to contact their state legislators about the issue. His points included:

• Michigan farmland assessments are higher than any other Midwestern state.
• Most Midwestern states assess farmland based upon current land use. Michigan assesses upon potential market value.
• Without PA 116 tax refunds, participating Michigan farmers would not be competitive in many areas of the state. PA 116 levels the playing field while holding local units of government harmless.
• With approximately $1 billion in annual tax abatements for all industry in Michigan, $35.9 million was returned to Michigan landowners in 2009 under the PA 116 program.
• Under PA 116, agricultural landowners pay normal property taxes, and then are reimbursed by the state for any property tax liability over 3.5% of household income. Therefore PA 116 is a reasonable benefit for working farms while not rewarding speculative landholders who may have much larger personal incomes.
• Food production is Michigan’s second largest industry, with $81 billion generated from the farm supplier through the food retailer, employing approximately 1 million persons. Production agriculture, with land as the primary resource, is the linchpin of the state’s entire food economy.

Commissioner Mike Garfield asked about the status of the legislation that includes changes to PA 116. Bloomer didn’t know. [The state Senate passed a tax reform package the following day that included cuts to farmland tax credits. It will return to the House to be reconciled for a final vote there – the Republican-led House has already approved a version of the legislation – before going to Snyder for his signature. Clarification: The legislation repeals PA 116 credits only as part of a broader repeal of the Michigan Business Tax. For individual filers, PA 116 credits would remain unchanged. Also, taxpayers could choose to continue filing the MBT – in that case, they would also continue to receive the PA 1116 credits.]

Commissioner Gil Omenn said he knew people were getting primed to testify about the tax changes at upcoming legislative hearings, but he wasn’t sure if the agricultural industry was represented. “We should hurry if we’re trying to make an impact,” he said.

Since the changes wouldn’t take effect until next year, Bloomer suggested that one strategy could be for farmers to sign up this year for the credits – contracts are for a minimum of seven years, but it’s possible to get the credits for up to 99 years, he noted. He said those would remain in place even if the credits are eliminated in future years. Contracts for the tax credits stay with the property even if ownership changes hands, he said – the only thing that would void the credits is if the land is used for something other than farming.

Commissioner Peter Allen said that if farmers feel their taxes are too high, they can always appeal that assessment. Yes, Bloomer replied, but the reality is it’s rare to win an appeal.

Allen noted that many of the tax credits slated for elimination – including historic preservation and brownfield credits – would really hit the real estate industry hard. [Allen is a local developer.] Now, some legislators are trying to find ways to soften that impact, he said. But the idea is to get everyone back to the same base, he noted – and taking away subsidies is part of that agenda for Snyder.

Bloomer reiterated one of the points in his handout – that neighboring states assess farmland based upon current land use, not potential market value. That puts Michigan farmers at a disadvantage, he said, and that’s what PA 116 was designed to address. It penalizes people who hold land for speculative purposes, he said, making it expensive for them to stockpile land for development. Allen noted that the pendulum is swinging on that – given the economy, there’s much less interest from developers.

GAC Membership Term Limits

Mary Fales from the city attorney’s office was on hand to update the commission about member terms. She had drafted a resolution to restate GAC’s membership terms.

GAC chair Jennifer S. Hall introduced the issue by noting that at their Nov. 10, 2010 meeting, she had mentioned that her term and the term for Gil Omenn would be ending as of June 30, 2011 – she had encouraged anyone who was interested to contact their city council representative. [For most city boards and commissions, the mayor is responsible for nominating members, and those nominations are voted on by the city council. However, GAC and the environmental commission differ in this respect – for those bodies, nominations are made by city councilmembers.]

From left: Ann Arbor greenbelt advisory commissioners Tom Bloomer, Dan Ezekiel, and Gil Omenn. Partially visible is Ginny Trocchio, greenbelt program manager, who appears to be describing how a bunny might hop through the forest. Ezekiel is portioning out candy he brought to share, purchased from the newly opened Cherry Republic store on Main Street.

At the time, in response to a query from The Chronicle, she had looked at information about terms on the commission and found some inconsistencies, and had asked the city attorney’s office to sort it out.

Fales said she conducted an historical audit, reviewing all GAC resolutions since its inception. She provided a handout that showed the history of GAC membership, beginning with inital appointments in 2004. [.pdf file of GAC membership]

There had been confusion because some commissioners had resigned in the middle of their terms. In other cases, there had been a delay between the time a term ended, and the point when city council reappointed that commissioner. The research Fales conducted also found that two council resolutions of appointment – in 2008 and 2009 – included incorrect term years.

The resolution that GAC was asked to consider on Wednesday restated the current terms, Fales said, aligning the start dates to all fall on July 1, over staggered years. The restated terms, all for three years, are as follows:

• Jennifer Santi Hall (public at large): July 1, 2008 – June 30, 2011
• Gil Omenn (public at large): July 1, 2008 – June 30, 2011
• Catherine Riseng (biologist): July 1, 2009 – June 30, 2012
• Mike Garfield (environmental organization): July 1, 2009 – June 30, 2012
• Peter Allen (real estate): July 1, 2009 – June 30, 2012
• Tom Bloomer (agricultural landowner): July 1, 2010 – June 30, 2013
• Laura Rubin (environmental organization): July 1, 2010 – June 30, 2013
• Dan Ezekiel (public at large): July 1, 2010 – June 30, 2013

Fales noted that the most interesting gap was Garfield’s. He was appointed to a two-year term from 2004-2006, then a three-year term from 2006-2009. That term ended on June 30, 2009, but the city council didn’t reappoint him until Sept. 21, 2010. Catherine Riseng was reappointed on that same date – she was appointed to fill a partial term following the resignation of Sylvia Taylor.

The ordinance governing GAC appointments states that commissioners can serve for 60 days after their term expires. Garfield indicated that this meant his votes during the gap could be invalidated. Fales replied that the resolution restating GAC terms would fix that – it sets Garfield’s appointment as starting on July 1, 2009.

Fales said she expected Carsten Hohnke – the city councilmember who serves on GAC, but who was absent from Wednesday’s meeting – would sponsor the appointment resolution at council, but she hadn’t talked to him about it yet.

Omenn asked about the city council slot on GAC – it wasn’t included in the resolution. Fales reported that the council selects a councilmember to serve on GAC each year, and that’s handled separately.

Commissioners are allowed to serve two consecutive, three-year terms. If they are appointed mid-term to fill a vacancy after another commissioner resigns, they can still be appointed to two full terms after that, Fales said.

Outcome: The commission voted unanimously to recommend that city council adopt the restated GAC membership terms.

Update on Federal Farm and Ranchland Protection Program

Ginny Trocchio of The Conservation Fund, which is under contract with the city to manage the greenbelt program, gave a presentation to commissioners on changes made in the 2008 farm bill to the federal Farm and Ranchland Protection Program (FRPP). The primary changes relate to a new certification process, and to land eligibility and scoring criteria used for grant funding. The greenbelt program has received several million dollars worth of FRPP grants, and has additional applications pending.

Entities can now become certified by the state conservationist, who makes recommendations for certification to the U.S. Natural Resources Conservation Service chief for final approval. Becoming certified has no impact on an entity’s ability to get FRPP funding, Trocchio said, but it does streamline the review process and gives more responsibility to the certified entity for program management.

To become certified, an entity must hold at least 25 conservation easements, including five FRPP easements obtained over the past five years. Easements that are held by another partner – even if the greenbelt program has contributed funding – don’t count, she said. [In general, conservation easements are deed restrictions limiting the amount of development that can be done on the site, in exchange for certain tax benefits.]

The city holds 13 conservation easements now, she said, and another three deals are expected to close by year’s end. Ten of those have used FRPP funds.

Ginny Trocchio of The Conservation Fund, preparing to give a presentation to the Ann Arbor greenbelt advisory commission.

Another criteria is closing efficiency – referring to the amount of time it takes to complete a transaction. Entities must have an average closing efficiency of 18 months or less for FRPP projects, over the past 5 years. The city has a 10-month average for closing, Trocchio said.

Ann Arbor is one of the entities in Michigan that’s closest to meeting certification requirements, she said, noting that it’s possible to ask for waivers for some of the requirements.

Commissioner Peter Allen asked for her opinion about whether the city should seek a waiver and apply for certification. Trocchio said she had some concerns. For one, no one has yet gone through the certification process, and details about how that might occur are still being worked out. She said she’d want to get more information before taking action. What’s more, these changes were in the 2008 farm bill, even though it’s just now being rolled out. Negotiations are about to begin for the 2012 farm bill, she noted, which could bring additional changes.

She said another possibility is to look at getting Land Trust Alliance accreditation for the greenbelt program.

Allen asked what would happen if federal tax subsidies are turned inside out, and the FRPP program is eliminated.

Peg Kohring, a manager with The Conservation Fund, said she’d recently talked with an aide for U.S. Sen. Debbie Stabenow, who chairs the Senate Committee on Agriculture, Nutrition, and Forestry. The aide had reported that since production is down worldwide, there will likely be fewer subsidies, and those that remain in place will focus on driving production. Farmland preservation would be well-positioned for that scenario, Kohring said.

Kohring also noted that if the city pursues Land Trust Alliance accreditation, there are a number of policies that they’d need to put in place, beyond the basic policies they’ve already adopted. GAC might think about directing Trocchio to look into what’s needed in order to get accreditation, she said.

Trocchio then discussed changes to the FRPP land eligibility and scoring criteria. Under the new criteria, up to 66% of land eligible for FRPP funds may be forest land, she said. Previously, at least 50% of land had to be in agriculture production. The scoring criteria still favors larger parcels, she noted – parcels under 30 acres receive no points in the scoring.

Additional criteria have been added for the ratio of the land being considered for an FRPP grant to the county’s average farm size. In Washtenaw County, the average farm size is 128 acres. If the ratio is less than one, zero points are awarded.

Ezekiel noted that many large farms outside of the greenbelt’s boundaries to the west cause the average farm size to be higher. Farms inside the greenbelt tend to be smaller, and that puts them at a disadvantage with this scoring criteria, he said. Kohring observed that they should consider this fact when looking at potentially changing the greenbelt boundaries. Unless some of those larger farms get included within the greenbelt boundaries, the program won’t be as competitive for FRPP grants, she said.

Staff, Committee Reports: Joint Meeting, Greenbelt Boundary

Ginny Trocchio reported that a joint working session of the greenbelt and park advisory commissions will be held on Tuesday, June 7. That means GAC will not hold its regular meeting on June 8, she said. [The two commissions last held a joint session in April 2010.]

Trocchio also reported that Thursday, June 16 is the date for a greenbelt celebration, starting at 5:30 p.m. at the Braun farm in Ann Arbor Township, which was added to the greenbelt program in 2010. It will be open to the public, she said, and will include a presentation to highlight the program’s accomplishments. Trocchio said she expects the program will close on several deals over the next few months that will push the amount of protected land over the 3,000-acre mark.

At GAC’s next regular meeting on July 13, Trocchio said the agenda will include a presentation on Scio Township’s land preservation efforts. The township recently went through some strategic planning, working with consultant Barry Lonik, and they’ll come to share their priorities with GAC, she said.

Dan Ezekiel, GAC’s vice chair, reported that the subcommittee he’s leading to look at possible changes in the greenbelt boundary will be making a proposal at the July meeting. Any changes to the boundaries would also require approval by the city council.

Several commissioners expressed their thanks to Jennifer S. Hall and Gil Omenn. Mike Garfield praised their remarkable service, noting that they’d both been involved in the original campaign to launch the greenbelt program. The program has been built up over the years, he said, “and you’ve both contributed enormously to this.”

Peter Allen suggested they throw a party in honor of Hall and Omenn – and jokingly asked if Omenn could host it at his house.

Hall said that leaving the commission will mark the end of her current span of service with the city – she no longer serves on any other city board or commission. She noted that her first appointment was to the planning commission in 2003, and that she was glad her final meeting was back at city hall. “It just feels right to end here.” [GAC and other city groups have been meeting for the past year or so at the county administration building, during renovations to city hall. The May meeting was the first time GAC had returned to city hall.]

Greenbelt Acquisition Recommended

The commission entered closed session to discuss land acquisitions. After emerging, they unanimously passed a resolution recommending that Ann Arbor city council make a $127,200 offer for the purchase of development rights for a property within the greenbelt boundaries.

Before appearing on the city council’s agenda, details of these greenbelt acquisitions are not made public – parcels are identified only by their application number. In this case, the parcel number is 2011-05.

Dan Ezekiel was the only commissioner to comment on the offer, calling it a wonderful property. He said it’s an example of the synergies they’re starting to see when development rights acquired on one property can provide the proceeds to start the process for another one – in this case, expanding a block of excellent farmland, he said.

Present: Peter Allen, Tom Bloomer, Dan Ezekiel, Mike Garfield, Jennifer S. Hall, Catherine Riseng, Laura Rubin, Gil Omenn

Absent: Carsten Hohnke

Next regular meeting: Wednesday, July 13 at 4:30 p.m. in the second-floor council chambers at city hall, 301 E. Huron St., Ann Arbor. The commission will hold a joint working session with the park advisory commission on Tuesday, June 8. [confirm date]

Grace Singleton, a managing partner with Zingerman's Deli, talks about plans to apply to the local and state brownfield program as part of the deli's renovation plans. The business hosted a public meeting about the plans on June 21. (Photos by the writer.)

On June 21, Zingerman’s hosted a public meeting to answer questions about their plans for the brownfield application. Matt Naud, the city’s environmental coordinator, was on hand as well, and distinguished between this project and those that are typically associated with the term “brownfield.” In the case of Zingerman’s Deli, “it’s economic development,” he said, “It’s not about environmental cleanup.”

Specifically, brownfield status would allow Zingerman’s to be eligible for tax increment financing (TIF), a mechanism that would let the business recoup certain qualified expenses related to the project – possibly as much as $817,000 over 15 years.

It’s a different approach than the brownfield application most recently approved by city council for the Near North affordable housing project on North Main. In that case, the site’s need for environmental cleanup qualifies it for a brownfield status. Zingerman’s application also differs from Near North’s in that Near North isn’t seeking reimbursement through TIF. Both projects plan to apply for Michigan Business Tax credits.

Though Zingerman’s mailed out 1,014 postcards to surrounding residences and businesses to announce the meeting, only three members of the public attended, plus The Chronicle. One of those attending was Ray Detter, head of the Downtown Citizens Advisory Council. He offered at least a partial explanation for the low turnout: The city’s Historic District Commission was holding a reception at the same time for its annual preservation award recipients – lots of people were at the Hands On Museum for that event, he said. One of the winners – Quinn Evans Architects – is also the architect for the Zingerman’s expansion.

There’s perhaps an even more crucial HDC connection to the project: Assuming Zingerman’s secures site plan approval from city council, they would still need to seek a “notice to proceed” from the commission. If denied, the project can’t move forward as planned.

At a city of Ann Arbor brownfield plan review committee on Monday, the “what if” question was raised by Marcia Higgins, one of three councilmembers who serves on that committee. They were meeting to review the project’s brownfield plan and make a recommendation to council, which is expected to consider both the site plan and brownfield plan at their July 19 meeting. While affirming Zingerman’s commitment to that location, Rick Strutz, a managing partner in the deli, said that as a business decision, at the end of the day if the project doesn’t get HDC approval, they’d likely have to move.

How the Brownfield Program Works

The Michigan legislature passed the Brownfield Redevelopment Financing Act – Act 381 – in 1996. The law allows local municipalities to set up brownfield redevelopment authorities and to use various financing mechanisms to promote the cleanup and redevelopment of contaminated properties. It was later amended to include sites that are designated as “blighted” or “functionally obsolete” – Zingerman’s is seeking the “functionally obsolete” designation. The latter two categories are designed to promote economic development.

Brownfield status allows projects to get reimbursed for certain qualified expenses via tax increment financing (TIF). Redevelopment of a site increases its taxable value – the difference between its original taxable value and the new value is the “increment.” In the case of Zingerman’s Deli, the business paid $49,100 in real property taxes in 2009. A preliminary estimate by the owners is that their taxes would increase to $107,000 when the project is complete.

After tax revenues are collected, the owners of approved projects apply to get repaid out of the funds available from the “increment.” The TIF is authorized for only a certain period – after that, all tax revenue is kept by the taxing authorities.

The act also allows owners of brownfield properties to apply for Michigan Business Tax credits, which are granted by the Michigan Economic Growth Authority, or MEGA. Those credits – awarded to spur job growth and economic development – can amount to up to 20% of costs related to demolition, lead and asbestos abatement, infrastructure and other qualified expenses.

Locally, the Washtenaw County board of commissioners set up the Washtenaw County Brownfield Redevelopment Authority in 1999. Within the county, 23 municipalities have joined the authority, including the city of Ann Arbor. Because these municipalities operate under the county brownfield authority, the county board of commissioners must approve the plan before it’s submitted to the state. But first, the county requires that the local municipality sign off on the project. [.pdf file of brownfield application used for projects in the city of Ann Arbor]

The county has never rejected a brownfield plan.

As part of the process, the county charges an application fee based on the total project investment – $3,000 for projects of up to $5 million, and as much as $5,000 for projects over $10 million. The county can also take up to 10% of the total tax increment annually, for the duration of the project, for administrative expenses.

Near North, Other Ann Arbor Brownfield Plans

The Ann Arbor city council has approved one other brownfield plan so far this year – for the Near North affordable housing project on North Main. That development, just north of the downtown district, is eligible for brownfield status because of cleanup needed on the 1.19-acre site along 626-724 N. Main St., south of Summit. [.pdf file of Near North brownfield plan]

Specifically, the plan cited results from soil and groundwater samples taken in April 2009 and February 2010:

Benzo(a)pyrene, arsenic and lead were measured in soil samples at concentrations above the Part 201 Generic Residential Cleanup Criteria and Screening Levels (residential cleanup criteria) for Drinking Water Protection and/or Direct Contact.

Arsenic, barium, chromium, copper, lead, mercury, selenium, silver and zinc were measured in groundwater samples at a concentration above the residential cleanup criteria for Drinking Water and/or GSI.

Unlike Zingerman’s, Near North developers – led by the nonprofit Avalon Housing – will not seek reimbursement through TIF. But Near North does plan to apply for Michigan Business Tax brownfield redevelopment credits, which require that the brownfield status is authorized at the local level. Near North developers have identified $720,000 in eligible expenses to which the tax credits can be applied. The plan must next be approved by the Washtenaw County board of commissioners, and will likely be considered at their Aug. 4 meeting.

Beyond that, no other brownfield plans have been approved in Ann Arbor since 2008, when city council authorized three projects for brownfield status: The site of the former Michigan Inn on Jackson Road, the 601 S. Forest housing development in the South University area, and Maple Shoppes at the northeast corner of Maple and Dexter-Ann Arbor Roads, where the Aldi grocery is now located. To date, only the Maple Shoppes site has been redeveloped.

The largest brownfield plan approved by the city was for the Broadway Village at Lower Town project, which qualified for environmental cleanup. The plan, approved in 2003, requested TIF reimbursement of up to $40.4 million over a period of up to 30 years. Existing structures on the site were demolished, but otherwise the development hasn’t moved forward. On the county’s brownfield project website, its status is listed as “unknown.”

Zingerman’s Deli Expansion

Zingerman’s Deli has been working on plans for its major renovation for about four years – managing parter Rick Strutz reports that when the project team first began meeting every Tuesday morning, they didn’t think they’d still be at it 200 weeks later.

Because it’s located in the Old Fourth Ward historic district, the project needs approval from the city’s historic district commission. Business owners officially approached the HDC in 2008, asking for permission to demolish two buildings on the site – a fire-damaged house at 322 E. Kingsley St., directly behind the main deli building, and a two-story building at 420 Detroit St., known as “the orange house” or the Annex.

That request was denied, and set in motion a different approach to first seek approval for the project from the city planning commission and city council, then to return to the HDC for a “notice to proceed.” [See Chronicle coverage: "Zingerman's: Making It Right for the HDC"]

Project Timeline To Date

At the same time, the city was working through an extensive revision to its zoning ordinances, known as A2D2. Among those revisions was the rezoning of the 322 E. Kingsley parcel from residential to D2, which allows for commercial development. Here’s a timeline of the Zingerman’s project over the past two years, and related city zoning initiatives:

• June 12, 2008: Historic district commission denies request for demolition of 322 E. Kingsley St. and 420 Detroit St. [Rocco Disderide's former residence, aka "the orange house" or the Annex]
• Feb. 19, 2009: Planning commission adopts downtown plan with various revisions but no change to existing R4C zoning of 322 E. Kingsley St.
• April 6, 2009: City council gives initial approval to zoning revisions to downtown requiring alterations to the downtown plan adopted by the planning commission; major alterations include changes in South University area, but also included a rezoning of 322 E. Kingsley St. from R4C to the new D2 classification. The amendment on 322 E. Kingsley St. is introduced by Sandi Smith (Ward 1) and passes with dissent only from Sabra Briere (Ward 1). [link]
• May 19, 2009: Planning commission approves revisions to the downtown plan to accommodate part of the city council’s South University zoning revisions, an East Huron zoning revision, and the 322 E. Kingsley St. revision. [link]
• June 15, 2009: City council adopts downtown plan as revised by the planning commission. [link]
• Nov. 16, 2009: City council gives final approval to downtown zoning revisions, including the D2 designation to 322 E. Kingsley St.
• Jan. 14, 2010: At an HDC work session, Zingerman’s presents plan showing demolition of two houses.
• March 8, 2010: Zingerman’s holds a public participation open house on its proposed expansion.
• March 11, 2010: At an HDC work session, Zingerman’s presents a plan showing demolition of one house only. [link]
• May 18, 2010: Zingerman’s gets unanimous approval for its site plan from the Ann Arbor planning commission. The plan includes renovation of the Annex and demolition of 322 E. Kingsley. [link]
• June 21, 2010: Zingerman’s holds public meeting regarding brownfield application.
• June 28, 2010: Zingerman’s meets with the city’s brownfield plan review committee, which recommends approval. Both the site plan and brownfield plan are expected to be on the council’s July 19, 2010 meeting.

The site plan now calls for tearing down the house at 322 E. Kingsley and building a two-story, 10,340-square-foot addition that would be connected to the 5,107-square-foot deli building via a glass atrium. They’ll add underground tanks for stormwater detention and several environmentally-friendly design elements, including a green roof on the deli’s existing one-story wing. Phoenix Contractors of Ypsilanti is the project’s construction manager and general contractor.

All along, Zingerman’s executives have cited concerns over the project’s expense, particularly the cost of renovating the Annex. The overall project is expected to cost about $6.7 million. Roughly $500,000 is associated with renovating the house, which is relatively small – less than 900 square feet. Renovation will entail moving the Annex off its existing foundation, replacing the foundation, renovating the house, then moving it onto the new foundation and incorporating the structure into the new deli addition.

That expense was one motivation for seeking brownfield status.

Brownfield Plan Review Committee Weighs In

Because Ann Arbor has been identified by the state as a “core community,” the brownfield designation can be applied more broadly – not just for environmental cleanup, but for economic development as well, to reimburse expenses such as public infrastructure improvements and stormwater management. That’s the path that Zingerman’s is pursuing.

They’re making their case based on their track record as well as plans for future growth. Since 1982, the business has grown from four employees to around 200. Because of added capacity from the expansion, they plan to add another 40 deli employees over the next five years, and a total of 65 employees throughout all of Zingerman’s operations, which include their mail order business, bakery and creamery, among others.

One of the first steps in the brownfield process was to ask the city assessor to designate the property at 322 E. Kingsley as “functionally obsolete.” Because that property is part of the entire parcel to be redeveloped, the whole site qualifies for a brownfield under that designation. The city’s assessor, David Petrak, is expected to submit a letter to that effect this week, after it’s vetted by the city attorney’s office.

The process also includes hosting a public meeting – that happened on June 21, at the second floor of Zingerman’s Next Door, which is adjacent to the deli. Three members of the public attended.

Zingerman's Deli managing partner Rick Strutz, left, and attorney Gary Bruder, the owner's representative on the deli's expansion project, at the June 28 meeting of the city's brownfield plan review committee, held at city hall.

The turnout was much higher at the June 28 meeting of the brownfield plan review committee, which is charged with making a recommendation to city council. The committee consists of three city councilmembers – Sandi Smith (Ward 1), Stephen Kunselman (Ward 3) and Marcia Higgins (Ward 4). All of them attended Monday’s meeting, as did several city staff: Matt Naud, environmental coordinator; Tom Crawford, chief financial officer; and Matt Horning, city treasurer. Also at the meeting were Susan Polllay, executive director of the Ann Arbor Downtown Development Authority; and Brett Lenart, a Washtenaw County staff member who handles brownfield issues. Three members of the Zingerman’s team were there as well: Rick Strutz, managing partner of the deli; Gary Bruder, an attorney and owner’s representative; and Jared Belka, a paralegal with Warner Norcross & Judd, a Lansing-based law firm that’s helping with the brownfield plan.

In describing the project, Strutz told the group that their No. 1 priority is to preserve the historic brick structure that houses the deli. “We are beating the crud out of this building,” he said. The addition will allow them to move all cooking out of the old building, to eliminate the moisture and humidity that’s generated in the kitchen.

Bruder and Strutz highlighted several other aspects of the project: meeting ADA standards of accessibility; adding bathrooms and a staff breakroom; building a storage area which will allow them to take fewer deliveries, with an aim of reducing traffic congestion; sharing an area for trash and composting with neighboring Community High School, and working with students on an instructional composting project.

Strutz said the project’s general contractor, Phoenix Contractors of Ypsilanti, calls it a “surgical construction process” because of the tight site within a neighborhood setting, and the need to keep the deli open throughout construction. In response to a query, Bruder noted that it’s not a planned unit development (PUD), which prompted Higgins to say, “Thank god!”

But much of the meeting’s discussion centered on issues related to the historic district.

Challenges of the Historic District

Bruder reiterated that because the Historic District Commission had determined that 322 E. Kingsley and the Annex were “contributing” structures and could not be demolished, the only alternative for Zingerman’s was to request what’s called a “notice to proceed” from the HDC.

The criteria for issuance of such a notice, from the city code, are as follows:

8:416. Notice to proceed.
(1) Work within a historic district shall be permitted through the issuance of a notice to proceed by the commission if any of the following conditions prevail and if the proposed work can be demonstrated by a finding of the commission to be necessary to substantially improve or correct any of the following conditions:
(a) The resource constitutes a hazard to the safety of the public or to the structure’s occupants.
(b) The resource is a deterrent to a major improvement program that will be of substantial benefit to the community and the applicant proposing the work has obtained all necessary planning and zoning approvals, financing, and environmental clearances.
(c) Retaining the resource will cause undue financial hardship to the owner when a governmental action, an act of God, or other events beyond the owner’s control created the hardship, and all feasible alternatives to eliminate the financial hardship, which may include offering the resource for sale at its fair market value or moving the resource to a vacant site within the historic district, have been attempted and exhausted by the owner.
(d) Retaining the resource is not in the interest of the majority of the community.

Before Zingerman’s can make a request for the “notice to proceed,” their site plan must be approved by city council and their financing must be in place, among other things. Bruder said they’d held four working sessions with the HDC – the project as it stands is one that Zingerman’s is comfortable with, he said, and one that they think the HDC will be able to support.

At the June 21 public meeting, Detter had said he couldn’t imagine anyone on the HDC who’d be against the project – only an “extreme historic preservationist” wouldn’t want it to proceed, he said. He also said the Downtown Citizens Advisory Council – which he chairs – supports the project, and he felt it undoubtedly had the enthusiastic support of the entire community. But members of the Zingerman’s team indicated that they didn’t take approval for granted.

During Monday’s meeting of the brownfield plan review committee, Sandi Smith clarified that it was possible for the HDC to turn them down. “We really hope they don’t,” Bruder said, “But they could.”

Bruder pointed out that Zingerman’s is taking a big risk – if the HDC denies their request, their investment of time and money in the project so far will be for nothing.

Smith asked how much additional cost was added to the project due to preserving the Annex. About $500,000, Bruder said – or $550 per square foot. That doesn’t include all of the fees and expenses spent up until this point, he noted, related to working with the HDC and revising the site plan based on the rejection of Zingerman’s original plan, which included tearing down the Annex.

Smith asked whether it was fair to say that they were seeking tax credits because of those additional costs. Bruder responded by saying that the Zingerman’s team had recently met with the DDA’s operations committee, which had asked the question more bluntly: Will the project proceed if Zingerman’s doesn’t get the assistance it’s seeking? The project will go forward, Bruder said, but not necessarily as it’s now envisioned. Contrary to urban legend, he added, Zingerman’s does have finite resources. And if they get TIF reimbursement and state tax credits, it would allow them to do other things to enrich the project.

Strutz noted that at one point they’d talked about putting in a geothermal system, but when they found out they’d have to “put lipstick on the pig” – referring to the renovation of the Annex – that removed some options in other areas, he said.

Smith suggested that keeping the Annex was actually costing taxpayers. Kunselman then asked whether Zingerman’s planned to apply for historic preservation tax credits. They’re pursuing it, Bruder said, but they might not qualify. He noted that because they’re committed to that site, they realize that it adds to their costs.

Kunselman said he recalled the time before Zingerman’s was founded – he went to Community High School, and remembers the site before it became the well-known deli. The historic district helps give Zingerman’s its ambiance, he noted, saying he didn’t want the discussion to become one about how costly a historic district is.

Strutz said that after their staff, the most important thing to the business is its look and feel. They’ve spent a lot of time making sure the Annex won’t look out of place in the new campus, he said, but it’s been challenging.

Higgins asked what would happen to the business if the project weren’t approved. Bruder said they’ve never wanted to come to the city and threaten to move if they weren’t approved – Higgins assured him that she wasn’t getting that impression.

Strutz reported that at one of the working sessions, they’d been told by a member of the HDC that the greenest building was one that was already built, and that Zingerman’s should move to another location if it wanted to expand – the vacant commercial space at Liberty Lofts was suggested, he said.

The Chronicle has attended two working sessions between Zingerman’s and the HDC, and reported the exchange that Strutz referenced. From coverage of the Jan. 14, 2010 meeting:

Commissioners discussed how far the notion of “necessity” in the criteria for a notice to proceed extended – was it “necessary” that Zingerman’s undertake the expansion at that location?

Commissioner Ellen Ramsburgh wondered if the expansion was more than the site could take. She noted that the Zingerman’s Creamery and Bake House had moved to peripheral locations. “Do you need to be there?”

In her remarks, Ramsburgh was echoing sentiments expressed by then-commissioner Michael Bruner back in June 2008, when he had made the suggestion that Zingerman’s think of moving their operations. The specific location he had in mind was the Old West Side structure adjoining the Liberty Lofts development:

“Commissioner Bruner – [...] This may be less than what they need, but there stands today, a project that we reviewed and was approved, a development that includes a 20,000 square foot commercial retail area with parking that is begging to be occupied. [An apparent allusion to the Liberty Lofts greenhouse building.] As preservationists that want to encourage the success of economic projects in the city, perhaps Zingerman’s should consider moving their location as they have with their Creamery, which is at a satellite location, their Bakery which is at a satellite location, their Roadhouse that is a satellite location – this could be relocated as a satellite component at another location, nevertheless retaining this location as it is.”

Ken Clein [a Quinn Evans architect who's handling the Zingerman's project] responded to Ramsburgh at the January 2010 HDC working session by wondering if there were another historic district in another town where Zingerman’s could contemplate locating their operations. Ramsburgh: “That’s a threat!”

On Monday, Strutz said that at the end of the day, as a business decision they probably would have to move if the project isn’t approved. They’re losing business because they lack capacity now – you can see it when people are waiting in lines that wrap around the block, he said. Bruder added that there’s a breaking point, but they haven’t hit it yet.

Kunselman wondered if rejection of the plan would lead to a Glen Ann scenario. [He was referring to Glen Ann Place, a project that won approval from the planning commission and city council but was denied by the HDC. The situation ended in a lawsuit, settled in the summer of 2007 in a way that allowed the project to move ahead. But so far, nothing has yet been built on that vacant lot just north of Ann Street on the west side of Glen Avenue, where two houses previously stood.]

Strutz replied that he didn’t think they had the time to deal with it in that way.

Other Issues: Pro Forma Analysis

Matt Horning, the city’s treasurer, said that in the past they’ve looked at a project’s pro forma income statements with and without the brownfield TIF capture, and he wondered whether councilmembers wanted that kind of anaylsis on this project. Higgins suggested making it part of the committee’s recommendation to council.

With that, the committee voted unanimously to recommend approval of the brownfield plan, pending the pro forma analysis. “It’s moving forward!” Higgins said.

What’s Next?

One pending issue is related to the Ann Arbor Downtown Development Authority. The property straddles the boundary of the DDA, which also gets its funding, in part, from a TIF. The DDA is first in line to get new TIF revenues, which would amount to about $407,000 from that site over a 15-year period.

Rather than asking the DDA to forgo those revenues, Zingerman’s is asking that it identify other things of equivalent value to contribute to the project. They discussed possibilities with the DDA’s operations committee at a meeting last week.

Following Monday’s brownfield committee meeting, DDA executive director Susan Pollay told The Chronicle that the project is attractive to the DDA for several reasons, including the number of new jobs it will create and the amount of tourism dollars it attracts to the downtown, as a destination for visitors. The business has become an iconic identifier for the city, she said – and building a unique identity is one of the DDA’s strategies for creating a vibrant downtown.

On Tuesday, Strutz sent a letter to Pollay outlining some specific requests for the DDA board to consider. They include:

• $100,000 to reimburse Zingerman’s for costs associated with LEED certification.
• $160,000 for costs associated with on-site water detention.
• $50,000 to install ADA-compliant curb ramps at the Detroit and Kingsley intersection.
• $45,000 for sidewalk removal and replacement.
• $10,000 for wayfinding signs pointing to the deli, plus a roof sign on the addition that can be picked up by Google maps.
• Several other items with a cost to-be-determined, including parking spaces for contractors and a staging area, plus replacement or repair of brick pavers, curbs and water/sewer lines on Detroit Street between Kingsley and Catherine.

The letter states that support from the DDA would significantly improve their changes to receive Michigan Business Tax credits. Pollay expects the DDA board will consider and vote on a resolution of support for the Zingerman’s project at their July 7 board meeting.

City council is expected to consider the site plan and brownfield plan at their July 19 meeting. The county board of commissioners will likely vote on the brownfield plan at their Aug. 4 meeting – if approved, the brownfield plan would then be forwarded to the state.

Bruder said they hope to have the project considered by the historic district commission in September.

Assuming all approvals are in place, site work would begin in the late fall of 2010, with work on the addition starting in February of 2011. The goal is to complete the project by March of 2012, in time for the deli’s 30th anniversary celebration. They plan to keep the deli open during construction.

More information about the Zingerman’s project is available on a section of the deli’s website.