Chris Haslinger (second from right), director of training for the United Association (UA) of plumbers and pipefitters, received a proclamation from the county board of commissioners at the board’s Aug. 6 meeting. They were gathering for a photo to mark the event. From left: Conan Smith, Andy LaBarre, Alicia Ping, Yousef Rabhi, Chris Haslinger, and Verna McDaniel, the county administrator. (Photos by the writer.)

The county has determined that it’s authorized to collect up to 1/10th of a mill for support of indigent veterans, without seeking voter approval. That’s because the state legislation that enables the county to levy this type of tax – the Veterans Relief Fund Act, Public Act 214 of 1899 – predates the state’s Headlee Amendment. The county first began levying this millage in 2008, and collects the tax in December. The current proposal is to levy 1/27th of a mill in December 2014, which is expected to raise about $540,887 in revenues for use in 2015.

The county’s position is that Act 88 can also be levied without voter approval to fund economic development and agricultural activities. This year, the proposal is to levy 0.07 mills in December 2014 – the same rate that was levied in 2013. It’s expected to raise an estimated $1,022,276 in property tax revenues.

Final action on these tax levies is expected at the board’s Sept. 3 meeting.

Also related to Act 88, the board approved allocations of $87,760 in Act 88 revenues that were collected in 2013, to support six projects. Four of the projects are administrated by Ypsilanti-based Growing Hope, with the remaining two projects initiated by the Michigan State University Product Center.

During the Aug. 6 meeting, commissioners approved amendments to both the Act 88 projects resolution and the resolution to levy the tax this year. The amendments directed the county’s corporation counsel to provide a written opinion about how Act 88 revenues can lawfully be used, and how the tax can be lawfully levied without a vote of the people. The amendments were brought forward by Dan Smith (R-District 2).

In other action, the board received a second-quarter budget update, with projections showing a general fund surplus of $211,920 for the year. The board also made mid-year budget adjustments, which included allocating a $3.9 million surplus from 2013 into unearmarked reserves.

Commissioners approved a new policy to guide decisions on tax increment finance (TIF) proposals, and supported revised rules and guidelines from the water resources commissioner. Those revisions relate to procedures and design criteria for stormwater management systems.

A proclamation made during the Aug. 6 meeting honored Herb Ellis Sr., the first black man to be elected to the Washtenaw County board of commissioners. Ellis was elected in 1968 and served until 1982, representing Ann Arbor. During that time he also was the first black chair of the county board. He passed away on July 10, 2014 at the age of 98.

Another resolution recognized the contributions of United Association (UA), a union of plumbers, pipefitters, sprinkler fitters, welders, and heating, ventilation, air conditioning and refrigeration (HVACR) technicians. They’re in this area from Aug. 9-15 for their 61st annual training program, and have announced a new 15-year agreement to continue the program at the Washtenaw Community College.

The Aug. 6 meeting was held one day after the Aug. 5 primary elections. At the start of the meeting, board chair Yousef Rabhi congratulated all primary candidates, and said he looked forward to working with Ruth Ann Jamnick, the winner of the District 5 Democratic primary. He quickly added “pending the general election, but I think…” – a comment that drew laughs. District 5 – which covers August Township and parts of Ypsilanti Township – is heavily Democratic. Jamnick, who prevailed in the four-way Democratic primary, will face Republican Timothy King in the Nov. 4 general election. District 5 was the only race that was contested for the county board, with incumbent Rolland Sizemore Jr. not seeking re-election. Incumbents in all other districts of the nine-member board were unchallenged in the primary.

At the end of the meeting, the board voted to enter into a closed executive session for the purpose of reviewing attorney-client privileged communication. It is one of the exemptions allowed under the Michigan Open Meetings Act.

After about 30 minutes, three commissioners returned to the boardroom – Dan Smith (R-District 2), Alicia Ping (R-District 3) and Conan Smith (D-District 9). They indicated to The Chronicle that they thought the discussion in the closed session had strayed away from the limits imposed by the OMA, and they had left the session because of that. They did not state what the nature of the discussion had been, nor the topic of the session.

Soon after, the remainder of the board emerged from the closed session, and the meeting was adjourned.

Act 88 Grants, Levy

The Aug. 6 agenda included a resolution to approve allocations to six projects, using funds from an Act 88 millage that the county levies each year. Commissioners were also asked to give initial approval to levy that tax.

Tony VanDerworp, the county’s economic development officer.

The county’s position is that Act 88 of 1913 can be levied without voter approval to fund economic development and agricultural activities. This year, the proposal is to levy 0.07 mills in December 2014 – the same rate that was levied in 2013. It’s expected to raise an estimated $1,022,276 in property tax revenues.

In previous years, the resolution setting this millage has outlined how the revenues would be allocated. The largest allocations have gone to the county’s office of community & economic development, and to the nonprofit Ann Arbor SPARK.

However, at its Nov. 6, 2013 meeting, the board adopted a new policy for allocating Act 88 revenues, drafted by Conan Smith (D-District 9). [.pdf of Act 88 policy] The policy included creating an Act 88 advisory committee to make recommendations to the board and prepare an annual report that assesses how Act 88 expenditures have contributed toward progress of goals adopted by the board. The policy allows the committee to distribute up to 10% of annual Act 88 revenues without seeking board approval. The policy also allocates up to 30% of revenues to the county office of community & economic development, which administers Act 88 funding.

This year, the 10% amounts to $91,753. Of that, $3,993 remains unallocated and will stay in the Act 88 fund balance to support future projects. Beyond that, a total of $87,760 in funding was recommended for six projects initiated by two organizations – the Michigan State University Product Center, and Ypsilanti-based Growing Hope [.pdf of staff memo]:

• $10,060 to the MSU Product Center to study the potential for enhanced food processing in Washtenaw County.
• $12,700 to the MSU Product Center to develop “MarketMaker,” a food industry business network and database.
• $20,000 to Growing Hope/Reconsider to run community education events on the Michigan Invests Locally Exemption Act and to study the potential and processes for investing locally in Washtenaw County.
• $13,000 to Growing Hope/Revalue to provide two full-day educational events to assist investors in incorporating local investment offerings into their financial plans.
• $13,000 to Growing Hope to create a study on increasing food assistance sales at farmers markets in Washtenaw County.
• $19,000 to Growing Hope to support the development of an Ypsilanti “MarketPlace,” a year-round farmer’s market, and “MarketHub,” a food distribution center serving underserved communities.

These recommendations were made to the county board by the Act 88 advisory committee. Members are: County commissioners Ronnie Peterson (D-District 6), Alicia Ping (R-District 3) and Conan Smith (D-District 9); Todd Clark, president of United Bank & Trust; and Art Serafinski, chair of the Ypsilanti Convention & Visitors Bureau board. Staff support was provided by the county’s office of community & economic development (OCED), including economic development officer Tony VanDerworp, who attended the Aug. 6 meeting along with OCED director Mary Jo Callan.

Act 88 Grants: Board Discussion

Commissioner Dan Smith (R-District 2) began the discussion by noting that he’s had some long-standing concerns about the legality of how the county is using Act 88 funds. Rather than sorting those issues out that night, he said he’d rather work with the county’s corporation counsel and come to an understanding about it.

He then brought forward an amendment for the projects resolution, requesting that corporation counsel provide the board with a written opinion about the lawful use of the sums raised under Act 88. Smith’s original proposed amendment stated:

FURTHERMORE BE IT RESOLVED that the Washtenaw County Board of Commissioners directs Corporation Counsel to provide an exhaustive written opinion, by December 31, 2014, detailing the lawful uses of sums raised under Act 88 of 1913 (MCLA 46.161), and that this opinion address in similar manner other possible interpretations.

Smith’s motion did not receive support from any other commissioners to bring it forward for discussion, so Alicia Ping (R-District 3) declared it dead due to the lack of support.

Dan Smith (R-District 2).

Conan Smith (D-District 9) and Yousef Rabhi (D-District 8) had been out of the room during this part of the meeting, and returned to their seats just after the motion had been declared dead. Conan Smith said he’d be willing to support Dan Smith’s motion. Alicia Ping (R-District 3) – vice chair of the ways & means committee, who was chairing the meeting in the absence of Ways & Means chair Felicia Brabec (D-District 4) – allowed D. Smith to reintroduce the motion. It was then supported by C. Smith.

C. Smith said there’s been a lot of confusion about Act 88, “and we face it every year.” He and D. Smith had spent a lot of time on the phone talking about the meaning of the act, he said, so “it would be really helpful to have an interpretation that we can use as we go into our granting processes and the distribution of these funds.”

At the Act 88 committee meeting that was held earlier in the day, C. Smith said, they began talking about the grants process for next year, and about how to ensure that the allocations relate specifically to the purposes of the act – “just to make sure we’re on the straight and narrow.” One way to go about it is to leave it up to the committee to determine, though none of the committee members are lawyers, he noted. He thought it would be great to have a statement to rely on. Even if it’s not possible to be definitive – because the law itself is unclear – it would be useful to know what ways the law could be interpreted, he said. C. Smith concluded that he was comfortable with the amendment.

Andy LaBarre (D-District 7) asked Curtis Hedger, the county’s corporation counsel, about what legal effect Hedger’s legal opinion would have – “what would it get us on the hook for down the road, good or bad?”

Curtis Hedger, the county’s corporation counsel.

Hedger replied that like any opinion, it would simply be his advice to the board. As policymakers, ultimately it’s the county commissioners who decide what to do, he noted. If the amendment were approved, he’d give them his best interpretation of how the Act 88 revenues can be spent. Hedger said that asking him to come up with alternative interpretations, as directed by D. Smith’s draft amendment, was a little “touchy-feely.” He added: “That would just be me speculating.”

As far as putting the county on the hook one way or another, Hedger said he didn’t think that was an issue, because it would just be an opinion.

Yousef Rabhi (D-District 8) asked what D. Smith meant by the word “exhaustive.” D. Smith replied that Hedger has already provided the board with opinions on other topics that explain how phrases could be construed in different ways. That’s what D. Smith intended by “exhaustive.” The language in MCLA 46.161 is extremely convoluted, he added, so Hedger could explain how parsing the grammar in different ways would yield different interpretations. Then it’s up to the board to decide which interpretation to use, he said.

Rabhi said he thought an opinion was simply an opinion – not a description of other opinions. He wasn’t sure it was an appropriate approach to ask for alternative interpretations. Rabhi would support asking Hedger to give the board his interpretation of the law, but it wasn’t Hedger’s job to do more than that.

C. Smith said he’d asked D. Smith to include that language in the amendment. He noted that the very first sentence of Act 88 has a semicolon in it. That sentence states:

The boards of supervisors of the several counties may levy a special tax on the taxable property within their respective counties for the purpose of creating a fund; or appropriate out of the general fund an amount to be used for advertising agricultural or industrial advantages of the state or county or any part of the state, or for collecting, preparing or maintaining an exhibition of the products and industries of the county at any domestic or foreign exposition, for the purpose of encouraging immigration and increasing the trade in the products of Michigan, or advertising the state and any portion thereof for tourists and resorters.

As an English major, C. Smith said, his interpretation of a semicolon is to stop one thought, and append another thought to it – interrelated but separate. So for the Act 88 language, he said, there might be two legitimate interpretations of the function of that semicolon. It’s important for the board, which will be allocating the Act 88 dollars, “to have some degree of comfort that we’re doing it within the parameters of legality, even if those aren’t 100% clear,” he said.

Conan Smith (D-District 9).

The courts ultimately are responsible for interpreting the law, C. Smith said. If the board asked for a legal opinion and someone then sued the county over Act 88, the board would have a document that showed the legal underpinnings for their decision – and “I would feel more comfortable with the decisions that we are making.”

Act 88 is a mess, C. Smith continued – it’s “ancient” legislation that’s been amended over the decades, making it even more convoluted. “Just knowing that we’re walking down a path that is legal – even if we’re not sure that that is the absolute right path – I think would be helpful for us on the committee to make an allocation of the funds,” he said. “What I definitely don’t want to do is to walk down a path that’s not legal.”

D. Smith said he wants to make sure there’s a very full discussion of the law’s various nuances. At the end of the day, Hedger will provide his best interpretation of the law, he added. But as part of that guidance, it’s prudent to explore other ways that it could be interpreted. It should answer as many questions as can be answered, he said, “so that this issue is put to rest once and for all.”

Rabhi said it seemed like D. Smith was trying to do Hedger’s job. He thought they should ask the person that they hired to be the county’s attorney for his opinion. If the board wants a white paper on Act 88, they should ask for that – but maybe not from Hedger, he said. Rabhi asked Hedger what he thought.

Hedger replied that after this discussion, he had a better feel for what the amendment is asking for. He said D. Smith was right – when Hedger writes legal opinions for the board, he often describes other interpretations that he doesn’t necessarily agree with. He didn’t have a problem with this approach.

Alicia Ping (R-District 3) didn’t think the amendment accurately reflected what the board wanted from Hedger. C. Smith said he’d be comfortable striking the last clause: “…and that this opinion address in similar manner other possible interpretations.” D. Smith agreed to that change.

Rabhi thanked the Smiths, saying that striking the clause would allow him to support the amendment.

The revised amendment was as follows: [strike-through reflects a clause that was struck during deliberations]:

FURTHERMORE BE IT RESOLVED that the Washtenaw County Board of Commissioners directs Corporation Counsel to provide an exhaustive written opinion, by December 31, 2014, detailing the lawful uses of sums raised under Act 88 of 1913 (MCLA 46.161), and that this opinion address in similar manner other possible interpretations.

Outcome on the amendment, as revised: It passed unanimously on a voice vote.

Outcome on main resolution, as amended: The board unanimously passed the resolution allocating Act 88 funds, without additional discussion.

After the vote, Conan Smith commented that this was the first round of competitive Act 88 grants, and the projects are really interesting. “I think they’ll be very impactful on the community,” he said. He was especially excited about the grant to Growing Hope to study how to increase the use of food stamps at the Ypsilanti farmers market, so that people who use food stamps can get better access to fresh fruit and vegetables. He encouraged everyone in the community to take a close look at these projects.

Rolland Sizemore Jr. (D-District 5) expressed some frustration about the amount of money in general that’s being spent on studies, rather than directly on projects. He thought that the Ypsilanti farmers market project should be expanded to other parts of the county.

Act 88 Levy: Board Discussion

Later in the meeting, the board was asked to consider a separate resolution that would authorize the county to levy the Act 88 tax this year.

Dan Smith brought forward a similar amendment, aimed at getting a firm understanding of the Act 88 millage:

FURTHERMORE BE IT RESOLVED that the Washtenaw County Board of Commissioners directs Corporation Counsel to provide an exhaustive written opinion, by October 1, 2014, detailing the exact mechanism under which Act 88 of 1913 taxes may be levied in excess of Article IX, Section 6 constitutional limits without a vote of the people.

There was no discussion on the amendment.

Outcome on the amendment: It passed unanimously on a voice vote.

Outcome on the main resolution, as amended: It passed unanimously.

2nd Quarter Budget Update

The administration gave an update on the county’s second-quarter financial status, for the period from Jan. 1 through June 30, 2014. County administrator Verna McDaniel introduced the update by calling it “good news.” [.pdf of presentation]

Finance analyst Tina Gavalier.

Tina Gavalier of the county’s finance staff told commissioners that property tax revenue is showing a projected surplus of $720,000 compared to what was budgeted for 2014. In addition, the sheriff’s office is projecting a roughly $200,000 surplus due to federal, state and local reimbursements for prisoner boardings. In the category of general intergovernmental revenues, there’s now a projected surplus of $370,000 due to state liquor tax funds and local reimbursements for animal control.

Several other areas are showing a revenue shortfall, however, compared to the amount budgeted. Those units include the clerk/register of deeds ($350,000 shortfall), district court ($209,000 shortfall), trial court ($73,000 shortfall) and interest income ($71,000 shortfall).

Gavalier noted that the trial court is still determining the impact of a Michigan Supreme Court decision prohibiting the assessment of court costs on criminal cases. The court can collect on anything that was assessed prior to the court ruling, she explained, but if no legislative action is taken, courts could see a substantial decrease in future revenues.

Overall, the net projected revenues for the general fund show a revenue surplus of $656,991.

On the expenditure side, the sheriff’s office has a projected over-expenditure of $673,000 related to overtime costs, inmate food and medical services, and law enforcement operating supplies. Gavalier said the sheriff and his staff are actively working to reduce that over-expenditure by year’s end. All other departments are reporting a combined operating surplus of $135,000.

In other expenditure categories, the line item for tax appeals and refunds is projected to have a surplus of about $239,000. The line item of central charges has a projected surplus of $93,000 due to tax refund overpayments being less than budgeted – partially offset by projected over-expenditures from the homelessness initiative that the board approved earlier this year. Appropriations are assumed to be on budget at $16.2 million. The expenditure projections also took into account structural and non-structural budget adjustments that have been made so far in 2014, totaling $560,000.

The net projected over-expenditures for the general fund are $445,070. So the projected general fund surplus for 2014 is $211,920.

Washtenaw County general fund projections for 2014.

If that $211,920 is added to the fund balance at year’s end, Gavalier said, then the fund balance would be 20.3% of the general fund expenditures.

Most departments that aren’t part of the general fund are on budget or are projecting a surplus, Gavalier reported. Two areas – veterans relief and risk management – are using their fund balances as planned, she said.

Some revenue issues to monitor include: (1) state legislation that might repeal or reform Act 88, (2) revenues for the clerk/register of deeds office, (3) court revenues, (4) personal property tax reform, and (5) payments from state revenue-sharing. Expenditure items to monitor include rising costs in the child care fund due to increased caseloads and placements, the sheriff’s office costs, and union contract negotiations.

Gavalier noted that the board will receive a third-quarter update in November, with a budget reaffirmation process taking place this fall for the 2015-2017 budget.

2nd Quarter Budget Update: Board Discussion

Responding to a query from Yousef Rabhi (D-District 8), Tina Gavalier explained that the projected revenue shortfall of $350,000 in the clerk/register of deeds office was from lower-than-projected fees from document-processing – such as real estate transfers and marriage licenses. It’s lower than it’s been in the past several years. Rabhi quipped: “Buy houses and get married, everybody!”

County administrator Verna McDaniel.

Regarding the courts, Rabhi asked if there’s legislation pending to address the impact of the recent state Supreme Court ruling. He wondered if the county’s lobbyist needed to work on something in Lansing. [Washtenaw County and several other local municipalities pay Governmental Consultant Services Inc. to act as a lobbyist for their interests at the state level.]

County administrator Verna McDaniel said she hadn’t taken any action on this issue, but would be talking with the court administrators about it. She pointed out that the courts operate under a lump sum budget.

Rabhi said it might be worthwhile to see what other counties are facing, and to see if there’s potential to work across county lines. McDaniel said she’d get more information about that.

Dan Smith (R-District 2) wondered when the new GASB regulations take effect. He was concerned when the administration talks about a “surplus,” knowing that the county actually has about a huge amount of unfunded liability.

By way of background, Smith was referring to more than $200 million in unfunded liabilities from the retiree health care and pension funds. The new accounting changes – required by the Governmental Accounting Standards Board (GASB) – take effect in phases. In 2014, the main change will be more disclosures in notes to the financial statements, required by GASB 67. But in 2015, when GASB 68 is implemented, the county’s unfunded actuarial accrued pension liability will be booked as a liability in the county’s statement of net position, which will be a significant change, according to the county’s finance staff. New standards for health care liabilities will be addressed in the future by GASB, and the county’s accounting staff is working on that.

McDaniel replied that it’s an issue that staff will “continue to dialogue with this board about,” to get direction in terms of priorities and any additional actuarial payments that might be required.

Alicia Ping (R-District 3) asked about the shortfall for the courts, saying she was concerned about it. She wondered how that will impact the memorandum of understanding with the county, regarding the lump sum budget under which the courts operate. McDaniel noted that in the past, the courts have been able to work within their lump sum budget. But this year, the impact of the Supreme Court ruling will be substantial, she said. So the courts will have to come up with a plan about how they’ll handle it. The impact could be as much as a half million dollars, McDaniel said. “We’ll work with them, and we’ll have more information as this develops.”

Ping also asked for a breakdown in line-item costs that are contributing to the over-expenditures in the sheriff’s office budget. McDaniel said that the sheriff, Jerry Clayton, felt confident that expenses will even out over the remainder of 2014, based on actions that his office is taking.

Outcome: This was not a voting item.

2014 Budget Adjustments

Commissioners were asked to give final approval to mid-year budget adjustments, including allocating this year’s higher-than-expected property tax revenues and a $3.9 million surplus from 2013. Initial approval had been given at the board’s July 9 meeting.

The adjustments increased the general fund budget’s expenses and revenues by $720,486 for 2014, $733,233 for 2015, $745,980 for 2016 and $758,727 for 2017. The county operates on a four-year budget, with the fiscal year matching the calendar year.

The adjustments were recommended by county administrator Verna McDaniel, who requested setting aside the $3,920,818 surplus from 2013 in unearmarked reserves, rather than spending it. The projected year-end 2014 fund balance is $20,638,675. The county board had previously approved a goal of holding a fund balance equal to 20% of its general fund budget. For 2014, the general fund budget is $103,127,202. [.pdf of staff memo and mid-year budget resolution]

In addition, the following mid-year budget adjustments were made to the general fund:

• Structural adjustments resulting in a $494,677 increase in expenditures for: (1) providing employee health care coverage for autism; (2) a consultant to help with the board’s budget priority work, (3) a “local government initiatives” intern; (4) reinstatement of two full-time equivalent positions in the sheriff’s office; and (5) salary adjustments for non-union employees.
• Non-structural, one-time, adjustments that increased expenditures by $65,000 for homelessness initiatives.

The administration recommended that the remaining $160,809 be held as an undesignated allocation until budget projections improve as new information becomes available. Finance staff gave a second-quarter budget update on Aug. 6, projecting that the county will have a $211,920 general fund surplus at the end of 2014. [.pdf of budget presentation]

From left: County prosecuting attorney Brian Mackie and commissioner Dan Smith (R-District 2).

When an initial vote was taken on July 9, commissioners Dan Smith (R-District 2) and Conan Smith (D-District 9) had voted against it. On Aug. 6, both raised the same concerns they’ve voiced earlier.

Conan Smith said he hoped that when the county achieves its goal of a fund balance equal to 20% of the general fund budget, then any extra surplus would be “put to work in the community.” With its vote that night, the board will have achieved fiscal stability, he said, and he looked forward to achieving community stability as well.

Dan Smith stressed the importance of setting a budget and sticking to it, with adjustments coming only during the annual budget affirmation process – rather than throughout the year. There are other things to focus on, he said, including policy issues.

Yousef Rabhi (D-District 8) said he agreed with C. Smith. The board has done a lot to make sure the county’s financial security is in place. Looking forward, there are some investments that the county can make in the community. He thanked C. Smith for advocating on that issue.

Outcome: The budget adjustments passed unanimously.

Veterans Relief Tax

Commissioners were asked to give initial approval to levy a tax to support services for indigent veterans.

The county has determined that it is authorized to collect up to 1/10th of a mill without seeking voter approval. That’s because the state legislation that enables the county to levy this type of tax – the Veterans Relief Fund Act, Public Act 214 of 1899 – predates the state’s Headlee Amendment. The county first began levying this millage in 2008, and collects the tax in December. Services are administered through the county’s department of veterans affairs.

Since 2008, the county board has slightly increased the rate that it levies each year. In 2012, the rate was 0.0286 mills – or 1/35th of a mill. It was raised to a rate of 1/30th of a mill in December 2013, to fund services in 2014.

The current proposal is to levy 1/27th of a mill in December 2014, which is expected to raise about $540,887 in revenues for use in 2015.

There was no discussion of this item at the board’s Aug. 6 meeting.

Outcome: The board unanimously gave initial approval to levy this millage. A final vote is expected at the board’s Sept. 3 meeting.

New TIF Policy

Commissioners were asked to give initial approval a policy to guide the county’s participation in tax increment financing (TIF) authorities.

Commissioner Andy LaBarre (D-District 7) and county administrator Verna McDaniel.

At its Oct. 16, 2013 meeting, the board had passed a resolution directing county administrator Verna McDaniel to develop a policy for evaluating future TIF proposals. The resolution stated that the policy would be developed with input from staff of the office of community and economic development, the equalization department, and the brownfield redevelopment authority. The Oct. 16 resolution was passed over dissent by the board’s two Republican commissioners, Dan Smith (R-District 2) and Alicia Ping (R-District 3).

Subsequently, an advisory committee was formed to help develop the policy. Members were: county commissioner Andy LaBarre (D-District 7); county treasurer Catherine McClary; corporation counsel Curtis Hedger; and finance director Kelly Belknap.

The two-page policy brought forward by McDaniel lays out a process by which the board would consider any proposed or amended Corridor Improvement Authority (CIA) or Downtown Development Authority (DDA) where the capture of county tax revenues is requested. [.pdf of TIF policy]

New TIF Policy: Board Discussion

Dan Smith (R-District 2) referred to this section of the policy:

III. Tax Increment Financing Participation Process

Any local unit of government proposing a new or amended Corridor Improvement Authority or Downtown Development Authority, or other statutory entity empowered to capture, incremental County tax revenues are requested, shall adhere to the following review process, in addition to those specified by the appropriate state enabling legislation:

…

D. Any County participation in these Tax Increment Financing Districts shall be through the execution of a participation agreement. A participation agreement shall include, at a minimum, extent of County participation including estimated amount (consideration of dollar for dollar and percentage estimates), duration, and methods, if any, of termination and reporting requirements.

IV. County Opt Out Authorization

In the event a requesting entity fails to adhere to this process, the Washtenaw County Board of Commissioners authorize the County Administrator to take the appropriate steps to opt out of participation in the proposed tax increment financing plan.

It appeared to D. Smith that no additional board approval would be required, in order for the county administrator to begin opt-out proceedings if the requesting entity doesn’t follow the agreed-upon process. He didn’t object to that approach, but wanted to make certain that it’s what is intended.

Andy LaBarre (D-District 7) responded, saying that D. Smith’s interpretation was correct. Corporation counsel Curtis Hedger said the committee gave that authorization because of a potential timing issue. There are times when deadlines related to the TIF process would occur before the next board meeting, “so it gives the administrator some flexibility,” he said.

LaBarre said the policy is an attempt to give the board as broad a framework as possible. This is a tool the board could use, he said, but he also urged the board to look at each individual proposal in its set-up and its context. There are so many different types of tax-capture mechanisms for many different purposes, so he wanted to give that caveat. LaBarre praised the county staff for their work in developing this policy, saying “I simply went along for the ride.

Outcome: The TIF policy passed unanimously on an initial vote. A final vote is expected at the board’s next meeting, on Sept. 3.

Appointments

Yousef Rabhi (D-District 8), the board’s chair, made several nominations for appointments.

• Food Policy Council: Khadije Wallace to the slot for a citizen representative, for a term ending Dec. 31, 2014.
• River Raisin Watershed Council: Evan Pratt, the county’s water resources commissioner, as the Washtenaw County representative; and Harry Sheehan, environmental manager with the water resources commissioner’s office, as the county alternate. Those terms both end on Dec. 31, 2014.
• 2014 Remonumentation and Land Survey Peer Review Group: Thomas Sutherland, John Jekabson, Kevin Gingras, Patrick Hastings and Kenneth Coleman.

Outcome: All appointments were confirmed.

Water Resources: Revised Rules & Guidelines

The board’s Aug. 6 agenda included an item to support new rules and guidelines proposed by the county’s water resources commissioner, Evan Pratt. The changes relate to procedures and design criteria for stormwater management systems. [.pdf of revised rules and guidelines]

The previous rules and guidelines had been adopted in 2000. According to a staff memo, the new changes reflect updated requirements of the county’s National Pollutant Discharge Elimination System (NPDES) Phase II stormwater discharge permit, which is administered by the Michigan Department of Environmental Quality.

Pratt attended the Aug. 6 meeting, but there were no questions from commissioners and no discussion on this item.

Outcome: The resolution supporting the revised rules and guidelines was approved.

Communications & Commentary

During the Aug. 6 meeting there were multiple opportunities for communications from the administration and commissioners, as well as public commentary. In addition to issues reported earlier in this article, here are some other highlights.

Communications & Commentary: Proclamations – UA

At its July 9, 2014 meeting, the board had passed a proclamation welcoming the United Association (UA), a union of plumbers, pipefitters, sprinkler fitters, welders, and heating, ventilation, air conditioning and refrigeration (HVACR) technicians. They’ll be in this area from Aug. 9-15 for their 61st annual training program. For the past 25 years, that program has been held in Washtenaw County on the Washtenaw Community College campus, bringing about 2,400 participants to the county with an estimated economic impact of $5 million. [.pdf of UA proclamation]

Chris Haslinger, director of training for the United Association (UA) of plumbers and pipefitters.

At the Aug. 6 meeting, Chris Haslinger, director of training for the UA, was on hand to receive the proclamation. He thanked the board. He described the growth of the training program over the years, pointing out that this year there will be 450 first-time attendees. He noted that the community here welcomes the UA members, and that the union receives a great deal of assistance from the Ann Arbor and Ypsilanti convention and visitors bureaus. Both presidents of those bureaus – Mary Kerr and Debbie Locke Daniel – also attended the county board’s Aug. 6 meeting.

Halsinger reported that the UA had reached an agreement with WCC to extend the program here through 2028. There are eight people based in the Ann Arbor area who work year-round on UA training programs, he said. Eight people might not seem like a lot, he added, but it’s important that they live here and contribute to the community.

He described some other initiatives undertaken with WCC, and concluded by thanking the county, the city of Ann Arbor, Local 190 and Local 704. “We look forward to a future in the Ann Arbor community,” he said.

Board chair Yousef Rabhi (D-District 8) responded by thanking Halsinger and sharing an anecdote. He said he was on a conference call with U.S. vice president Joe Biden, discussing the future of the country’s talent and job resources. Rabhi said he asked Biden a question and mentioned the partnership between WCC, the county, the UA and other communities as an example of the direction that the country should be heading. He thanked Haslinger for UA’s investment in this community.

Communications & Commentary: Proclamations – Herb Ellis Sr.

Yousef Rabhi (D-District 8) read a proclamation honoring Herb Ellis Sr., the first black man to be elected to the Washtenaw County board of commissioners. Ellis was elected in 1968 and served until 1982, representing Ann Arbor. During that time he also was the first black chair of the county board. [.pdf of proclamation]

Jeff Ellis.

Ellis had passed away on July 10, 2014 at the age of 98.

Jeff Ellis, one of Ellis’ sons, was on hand to accept the proclamation. His father’s life was dedicated to serving others, either through education, civic organizations or as an elected official, he said. In particular, Ellis had been interested in public health issues, promoting educational opportunities for young people, and improving the lives of senior citizens.

Herb Ellis was a pioneer in the community, as one of the first black teachers in the Ann Arbor public school system, and the first person of color to be elected to the county board of commissioners. He was recognized as a consensus-builder, Jeff Ellis said. “He believed in leading by example, and did his best to be a positive role model in all aspects of his life. By most accounts, he was successful in that effort.”

Communications & Commentary: Proclamations – Donald Shelton

The board had a third proclamation – for 22nd circuit court judge Donald Shelton, who is retiring this year. [.pdf of proclamation for Shelton] Shelton was out of town and did not attend the Aug. 6 meeting. Yousef Rabhi reported that the proclamation would be given to Shelton at a retirement party later this year.

Communications & Commentary: Public Commentary

Thomas Partridge introduced himself as a recent candidate for political office in the state legislature and Ann Arbor city council. He called on the county to redouble its efforts after the Aug. 5 primary election to give priority to eliminating homelessness, generating adequate affordable housing, true countywide affordable and accessible public transportation, affordable health care and education. He supported Act 88 funding but didn’t think the grants reflected these priorities. Partridge advocated for support of Democrat Mark Schauer in his bid for governor, and for a progressive Democratic platform to address the needs of the most vulnerable residents. The state needs a balanced budget, but not one that’s balanced on the backs of those who are least able to fend for themselves in this economy.

Executive Session

At the end of the meeting, the board voted unanimously to go into executive session for the purpose of reviewing attorney-client privileged communication. It is one of the exemptions allowed under the Michigan Open Meetings Act. Commissioners retreated to a room in the administration’s offices, along with several staff members and others who had been invited into the closed session.

After about 30 minutes, three commissioners returned to the boardroom – Dan Smith (R-District 2), Alicia Ping (R-District 3) and Conan Smith (D-District 9). They indicated to The Chronicle that they thought the discussion in the closed session had strayed away from the limits imposed by the OMA, and they had left the session because of that. They did not state what the nature of the discussion had been, nor the topic of the session.

Soon after, the remainder of the board emerged from the closed session, and the meeting was adjourned.

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

Absent: Felicia Brabec, Ronnie Peterson.

Next regular board meeting: Wednesday, Sept. 3, 2014 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The ways & means committee meets first, followed immediately by the regular board meeting. [Check Chronicle event listings to confirm date.] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public commentary is held at the beginning of each meeting, and no advance sign-up is required.

At its Oct. 16, 2013 meeting, the board had passed a resolution directing county administrator Verna McDaniel to develop a policy for evaluating future TIF proposals. The resolution stated that the policy would be developed with input from staff of the office of community and economic development, the equalization department, and the brownfield redevelopment authority. The Oct. 16 resolution was passed over dissent by the board’s two Republican commissioners, Dan Smith (R-District 2) and Alicia Ping (R-District 3).

Subsequently, an advisory committee was formed to help develop the policy. Members were: county commissioner Andy LaBarre (D-District 7); county treasurer Catherine McClary; corporation counsel Curtis Hedger; and finance director Kelly Belknap.

The two-page policy brought forward by McDaniel lays out a process by which the board would consider any proposed or amended Corridor Improvement Authority (CIA) or Downtown Development Authority (DDA) where the capture of county tax revenues is requested. [.pdf of TIF policy]

A final vote is expected at the board’s next meeting, on Sept. 3.

This brief was filed from the boardroom at the county administration building, 220 N. Main St. in Ann Arbor. A more detailed report will follow.

Carrie Leahy is chair of the LDFA board.

The council’s meeting was of more than just passing interest to the LDFA board members – because the council voted at that meeting to table a $75,000 contract for business development services with Ann Arbor SPARK, a local nonprofit economic development agency. Ann Arbor SPARK is also the LDFA’s contractor – but not for the same kind of services that SPARK delivers under its contract with the city. The council will likely take up its contract with SPARK again at a future meeting, possibly as soon as July 7.

The city’s annual contract with SPARK, which is paid for with general fund money, is meant to cover the attraction and retention of mature companies to the Ann Arbor area. In contrast, the LDFA contracts with SPARK for entrepreneurial support services – for companies that are in some phase of starting up.

On the LDFA board’s June 17 agenda was the annual contract with Ann Arbor SPARK for entrepreneurial support services – which the board voted to approve. This year that contract is worth nearly $2 million – $1,891,000 to be exact.

An unsuccessful bid by councilmembers made during the city’s FY 2015 budget deliberations would have reduced the total LDFA expenditures by $165,379. The goal of that expenditure reduction would have been to increase the fund balance that was available for infrastructure improvements in the LDFA district – specifically, for high-speed telecommunications. At the LDFA’s June 17 meeting, city CFO Tom Crawford indicated that sometime in the FY 2015 fiscal year, the city would be making a proposal to install fiber throughout Ann Arbor.

The contract between the LDFA and SPARK covers a range of items, with the top two line items consisting of staffing for the business incubator ($420,000) and provision of services to start-up companies in Phase III of their development ($550,000). SPARK classifies its engagement with companies in terms of phases: preliminary screenings (Phase I); due diligence (Phase II); intensive advising (Phase III); and accelerating opportunities (Phase IV). [.pdf of FY 2015 budget line items] [.pdf of LDFA-SPARK FY 2015 contract]

At its June 17 meeting, the LDFA board also approved a routine annual $42,600 contract with the city of Ann Arbor – for administrative support services. Those include items like the preparation of meeting minutes, stewardship of public documents, and preparation of budgetary analyses. [.pdf of FY 2015 LDFA contract with city of Ann Arbor]

The final voting item for the board was approval of its meeting schedule for the next fiscal year. The LDFA board meets in eight out of 12 months, with the next meeting taking place on July 15, 2014, starting at 8:15 a.m. in the city council chambers. [.pdf of 2014-2015 meeting schedule]

These voting items did not, however, generate the majority of the board’s discussion at its June 17 meeting.

The board focused most of its discussion on issues surrounding its application for an extension of the LDFA past its current 15-year lifespan, which ends in 2018. Legislation passed in 2012 allowed for either a 5-year or a 15-year extension – with different criteria for those time periods. The 15-year extension requires an agreement with a satellite LDFA, with two communities currently under consideration to partner with Ann Arbor’s LDFA: Brighton and Adrian. Flint had also been a possibility, but is no longer on the table.

With an extension, the LDFA would continue to capture school operating millage money, which would otherwise go to the state’s School Aid Fund. At least some of the school taxes subject to capture by LDFAs statewide are required to be reimbursed to the School Aid Fund by the state. Questions about how that applies to Ann Arbor’s LDFA have been raised – and a review of the state statute appears to support the conclusion that the key clause requiring reimbursement is inapplicable to the Ann Arbor SmartZone LDFA. That understanding was confirmed to The Chronicle by the Michigan Dept. of Treasury communications staff in a telephone interview on June 23.

The exact nature of that tax capture arrangement and possible reimbursement was also the subject of LDFA board discussion on June 17 – because the LDFA board is being pressed by city councilmembers to account for how the LDFA tax capture impacts the state’s School Aid Fund. Board member Stephen Rapundalo expressed some frustration about that – based on his perception that this material had been well explained in the past: “What’s it take – for them to understand unambiguously how that works? I mean, we have told them. Why is the onus on the LDFA to have to show them that?”

Besides the tax capture mechanism, two other issues raised by city councilmembers are factoring into the LDFA board’s approach to seeking an extension of its term. Board chair Carrie Leahy told her colleagues that she took away two main messages from recent appearances in front of the Ann Arbor city council. Some councilmembers, she said, would like to see: (1) an independent audit of job creation numbers; and (2) a provision for infrastructure investments as part of an LDFA extension.

On the infrastructure side, the LDFA board’s discussion focused on the existing TIF (tax increment finance)/development plan, which provides for investments in high-speed telecommunications (fiber) networks, but not for projects like street construction, sewer construction and streetlight installation. The question was raised as to whether the LDFA could use its school tax capture to pay for a fiber network in the whole geographic district of the LDFA – or if school taxes could only be used to fund a fiber network to an business incubator.

The Ann Arbor LDFA’s district covers the geographic areas of the Ann Arbor and Ypsilanti downtown development authorities – although Ypsilanti’s DDA area does not generate any LDFA tax capture. As a consequence, money captured by the LDFA is not spent in the Ypsilanti portion of the district. But that could change under an extension of the LDFA – based on board discussion at the June 17 meeting.

On the job creation numbers audit, the June 17 board discussion indicated that the LDFA will now be looking possibly to incorporate a job numbers audit as part of an upcoming financial audit. The financial auditing firm will be asked to provide some explanation of how it might be able to incorporate a jobs audit as part of its scope of work for the upcoming financial audit. The board appears to understand that some type of jobs audit would be important for winning ultimate city council support for a 15-year extension of the LDFA.

The city council’s representative to the LDFA board, Sally Petersen, made that explicit more than once during the June 17 meeting, saying that “taking the lead on establishing an independent audit would go a long way towards getting city council support for an extension.”

The LDFA’s deliberations and other agenda items are reported in more detail below.

Ann Arbor SPARK’s Two Roles

Some of the political chaffing surrounding Ann Arbor SPARK involves a lack of clarity about roles played by SPARK – which are, from SPARK’s perspective, clearly separate and distinct: (1) a somewhat conventional economic and business development agency that attempts to retain mature companies in the Ann Arbor area, and also to attract mature companies to locate in this area; and (2) an organization that provides entrepreneurial services to start-up companies and nurtures them toward commercialization. It’s this second role for which the LDFA contracts with SPARK.

At one point during the June 17 LDFA board meeting, Luke Bonner – SPARK’s vice president of business development – sought to clarify these two distinct roles. Bonner heads up SPARK’s efforts to retain and attract new fully-formed companies. Bonner got clarification that Ann Arbor city council’s discussion the previous evening had centered on the $75,000 business services contract between the city of Ann Arbor and SPARK.

The business development team at Ann Arbor SPARK – of which Bonner is a part – is not under contract with the LDFA, he pointed out. Instead, SPARK’s business development team is under contract with Washtenaw County, the city of Ann Arbor, various other municipalities in Washtenaw County, and Livingston County – in addition to all of the private funding received by Ann Arbor SPARK.

Bonner stressed that the business development and the entrepreneurial services teams operate in two different worlds. Bill Mayer, SPARK’s vice president for entrepreneurial services, followed up Bonner’s observation by pointing out that the kind of companies that Bonner deals with are too big for him to be able to help under the SmartZone (LDFA) guidelines. Mayer described the situation at Ann Arbor SPARK as two separate paths, but under one banner.

Mayer stressed that reports required by the Michigan Economic Development Corp. (MEDC) entail reporting different kinds of numbers. The issue of these different numbers from different reports has been raised as a concern by some members of the public, as well as by some councilmembers.

For outside observers, including some councilmembers, SPARK’s two distinct roles are not as self-evidently separate – because they both fly under the same banner of Ann Arbor SPARK.

The $75,000 contract to which Bonner referred was between the city of Ann Arbor and SPARK for its role as an agency that attracts and retains mature companies.  At the council’s June 16 meeting, the parliamentary motion used to deal with the contract was to “table” the question, which is not debatable under Robert’s Rule of order – so the council voted on the tabling motion, without additional deliberations. That vote came out 6-5 in favor of tabling. With that the council moved along on its agenda.

But at the end of the June 16 council meeting, Ward 1 councilmember Sabra Briere brought up the issue during the council communications time, saying that Ann Arbor SPARK CEO Paul Krutko had expected to be asked questions and respond to councilmembers’ concerns – but that had not happened. Briere alluded to the fact that the issue might come back before the council “sooner rather than later,”  but she wanted Krutko to be able answer some questions at that time – as he had remained in the council chambers until that point.

In the course of the back and forth, Ward 2 councilmember Jane Lumm told Krutko that she would have preferred to postpone it. But in talking to her colleagues during the break, Lumm said, there was greater interest in tabling the resolution.

The back-and-forth between the council and Krutko ultimately did not result in a motion by any councilmember to take up the resolution off the table for a vote. It appears likely that the council will consider the question at its July 7 meeting.

Some of the disparity of jobs numbers in SPARK’s reporting, as claimed by SPARK’s critics, appears to be due to reports that cover different activities: SPARK’s overall business development impact, as opposed to reports made to the state legislature and related to various state grants. [Ann Arbor SPARK 2013 annual report] and [21st Century Jobs Trust Fund 2013 Annual Report]

Contributing to the lack of definiteness on the numbers reported by SPARK is the fact that SPARK uses self-reported company figures for projected jobs – as opposed to independently verifying the creation of actual jobs. That independent verification is not necessarily straightforward, because SPARK may not be able to compel a company to disclose records that would allow such independent verification of a company’s self-reported jobs claims.

SPARK as LDFA Contractor

The LDFA board deals with Ann Arbor SPARK as its contractor for entrepreneurial services – not as an attractor and retainer of companies in the area. And the June 17 LDFA board meeting reflected that. On the agenda were three items related to that specific function of SPARK – the treasurer’s report, the report from SPARK, and the annual contract between the LDFA and SPARK.

SPARK as LDFA Contractor: Treasurer’s Report

Eric Jacobson gave the treasurer’s report. As of the end of May, he could report that spending by the LDFA’s contractor, Ann Arbor SPARK, was well below the amount budgeted for the year. There was an overall positive variance of about $76,000.

Eric Jacobson is the LDFA board treasurer.

He noted that Ann Arbor SPARK had exceeded its budget in two categories – but in both categories the amount by which it had exceeded budget is well below the threshold constrained by the contract.

That meant that SPARK could spend up to a certain amount over budget in any line item – he thought it was a 5% variance. First, SPARK had overspent in the internship and entrepreneur-in-residence program. SPARK had also overspent the budget in the line items to cover expenses for administrative costs for the incubator facility at SPARK Central.

He reiterated that both of those variances were very minor, so he could report that – as SPARK has done historically – the agency is spending within its budget overall, as the last month of the fiscal year approached. The fiscal year ends on June 30.

SPARK as LDFA Contractor: Report from SPARK – Interns, Incubator

The report from the LDFA’s contractor was given by Skip Simms, Ann Arbor SPARK’s senior vice president for entrepreneurial services. Simms sits on the LDFA board in an ex officio, non-voting capacity.

Simms told the board that he did not have much report, beyond what the LDFA treasurer, Eric Jacobson, had just covered. Referring to the overspending on incubator expenses, Simms said that if they were going to overspend, that’s where they would want to be overspending. He explained that the CEO-in-residence program was a way to help retain executive talent – keeping CEOs in the community who might otherwise be inclined to leave the community and work someplace else. The CEO-in-residence program allowed someone to be retained and at the same time provide their experience and expertise to start-up companies in the community. The CEO-in-residence program, not the interns, had caused SPARK to exceed that line item.

The definition of interns was an issue that still needed to be resolved for next year, Simms said. The next cycle of interns would actually be employees of Ann Arbor SPARK, he explained. Simms pointed out that on a couple of other different line items, Ann Arbor SPARK was under budget. Money could be moved around so that it would be “a wash” when the board reviewed SPARK’s quarterly report next month.

Board chair Carrie Leahy asked about the occupancy of the SPARK Central business incubator [in the Michigan Square building adjacent to Liberty Plaza, at the corner of Division and Liberty]. Simms responded by saying that SPARK Central on the lower level had more than 90% occupancy. There was an opening for perhaps one additional company, and there were some companies in line for that space. The third floor of the incubator is filling up, he said. On the third floor, there is perhaps room for one additional company, he said.

The third floor space, Simms continued, is finally breaking even on rent compared to expenses, so he expressed some optimism about that. More importantly, Simms said, companies on the third floor are growing and expanding. As an example, he gave Seelio, which has been acquired. The company is staying in Ann Arbor, Simms reported, and they are probably going to add five more people by the end of the year. The company is going to be squeezed for space, he said, so he was not sure if they were planning to move. If they moved, there would be quite a few seats that would need to be filled in the third floor space, he said. There were some companies in line for that space, however.

Simms then described the incubator environment in the community as a whole as growing. There are a couple of new incubators in town, he said, and the space they’re offering seems to be getting absorbed quickly: As soon as space becomes available, start-ups and early-stage companies are moving in. That was a good indicator for the future, he concluded. It reinforced the need for the LDFA to continue to have the kind of facility that Ann Arbor SPARK has created at 330 E. Liberty, Simms concluded.

Leahy ventured that the newest incubator was associated with University of Michigan. Skip Simms indicated that the incubator to which Leahy was referring was still in the works. Ann Arbor SPARK is in dialogue with the university on that. One of the reasons that Ann Arbor SPARK in dialogue with the university about that incubator, he explained, is that SPARK wants to have a clear understanding of what the goals and objectives are of that new incubator, and what kind capacity they are planning for. Because it would be operated by the University of Michigan, access would be limited, Simms said: Some kind of university relationship will be required to use the incubator, which would eliminate about 60% of the market.

Still, Simms ventured that there could be a partnership opportunity there. One possibility is that companies that started in the university’s incubator could be handed off to SPARK as they got closer to commercialization. He was not sure how far the university was planning to take companies in their evolution toward commercialization.

Responding to a question from Leahy, Simms indicated that university’s incubator concept was for relatively early-stage companies. Leahy said she heard the university was planning to take a percentage of ownership of the companies. Simms thought that was still under discussion. They are looking at a model that does take equity, he said. The university is freer to take that approach than the LDFA is, Simms said.

SPARK as LDFA Contractor: FY 2015 Contract

Board chair Carrie Leahy explained that the LDFA board’s contract committee had reviewed the contract – after Ann Arbor SPARK had reviewed it and proposed updates. A revised draft had then been proposed by the contract committee. That draft was now in front of the LDFA board for its approval, she explained. [.pdf of LDFA-SPARK FY 2015 contract]

Leahy called everyone’s attention to a section that was enclosed in brackets and bolded:

[The reports shall include, as applicable, and only at such times as required, information required to be reported in connection with an extension of the LDFA's term.]

She felt that the bracketed sentence was intended to be included as part of the contract – so it was not meant to actually be in brackets and bold. She checked with Simms to see if it was okay to simply include it. She wasn’t sure if Ann Arbor SPARK had had a chance to comment on the added language. The point of the added language, she explained, was that if the LDFA was awarded an extended term, the required reporting would already be expressed in the contract. She felt that the reporting that was described in the added language was already being done, in any case.

The new contract, Leahy explained, includes updates to the specified years and budget numbers. Another update the contract covers is how the internship program will work, she said. Leahy explained the changes to the internship program. Interns that are being deployed to people now will actually be Ann Arbor SPARK employees, she said. The contract between the LDFA and SPARK is been updated to reflect that arrangement, which has been approved by the MEDC, she said.

Outcome: The LDFA board voted to approve the updated contract with Ann Arbor SPARK.

City of Ann Arbor as LDFA Contractor: Administrative Services

The LDFA does not employ a staff – so it contracts with the city of Ann Arbor for administrative support services. Those include items like the preparation of meeting minutes, stewardship of public documents, and preparation of budgetary analyses. [.pdf of FY 2015 LDFA contract with city of Ann Arbor]

When the board reached the item on its agenda, board chair Carrie Leahy ventured that under the first bullet point, under “services,” the intended word was likely not “secretariat” but rather “secretarial.” There was some lighthearted commentary to the effect that the language had been like that for about 10 years and no one had noticed. [The intended word was, in fact, likely "secretariat" – in the sense of an administrative office or department, especially a governmental one.]

Leahy checked with board treasurer Eric Jacobson that he was OK with the numbers that were included at the end of the contract, and he was. She characterized the contract as the same as in years past, covering administrative support by the city of Ann Arbor for the board of the LDFA.

Outcome: The board approved the administrative services contract with the city of Ann Arbor for support of the LDFA board.

LDFA Extension

At its June 2, 2014 meeting, the Ann Arbor city council had approved a resolution expressing city council support of the local development finance authority’s application to the Michigan Economic Development Corp. to extend the life of the tax capture arrangement for up to 15 years. The MEDC is described on its website as the “state’s marketing arm and lead advocate for business development, talent and jobs, tourism, film, and digital media incentives, arts and cultural grants, and overall economic growth.”

Without an extension, Ann Arbor’s LDFA would end in 2018.

Under a 2012 amendment to the state’s LDFA statute [Act 281 of 1986], the MEDC is empowered to approve extensions of LDFAs for 5 or 15 years. Both extension options would require a greater explicit commitment to greater regional collaboration. But the 15-year option requires the creation of an additional “satellite” geographic area for tax capture:

In addition, upon approval of the state treasurer and the president of the Michigan economic development corporation, if a municipality that has created a certified technology park that has entered into an agreement with another authority that does not contain a certified technology park to designate a distinct geographic area under section 12b, that authority that has created the certified technology park and the associated distinct geographic area may both capture under this sub-subparagraph for an additional period of 15 years as determined by the state treasurer and the president of the Michigan economic development corporation.

The council’s resolution approved on June 2 stated that if the MEDC approves the extension, the city of Ann Arbor will work with the LDFA and the city of Ypsilanti to identify another LDFA – called the “Satellite SmartZone LDFA.” The arrangement will allow the satellite SmartZone LDFA to capture local taxes in its own distinct geographic area for the maximum 15 years allowed by statute.

What is it that would be extended? Ann Arbor’s local development finance authority is funded through a tax increment finance (TIF) district, as a “certified technology park” described under Act 281 of 1986. The MEDC solicited proposals for that designation back in 2000. The Ann Arbor/Ypsilanti “technology park” is one of about a dozen across the state of Michigan, which are branded by the MEDC as “SmartZones.”

The geography of the LDFA’s TIF district – in which taxes are captured from another taxing jurisdiction – is the union of the TIF districts for the Ann Arbor and the Ypsilanti downtown development authorities (DDAs). It’s worth noting that the Ypsilanti portion of the LDFA’s TIF district does not generate any actual tax capture.

In FY 2013, the total amount captured by the Ann Arbor SmartZone LDFA was $1,546,577, and the current fiscal year forecast is for $2,017,835. About the same amount is forecast for FY 2015.

The LDFA captures Ann Arbor Public Schools (AAPS) operating millage, but those captured taxes don’t directly diminish the local school’s budget. That’s because in Michigan, local schools levy a millage, but the proceeds are not used directly by local districts. Rather, proceeds are first forwarded to the state of Michigan’s School Aid Fund, for redistribution among school districts statewide. That redistribution is based on a per-pupil formula as determined on a specified “count day.” And the state reimburses the School Aid Fund for the taxes captured by some SmartZones in the state.

However, the school taxes captured by the Ann Arbor SmartZone are not required to be reimbursed to the state School Aid Fund – which diminishes the amount of funding for public schools statewide. That’s a conclusion based on a reading of the LDFA statute and confirmed to The Chronicle by communications staff in the Dept. of Treasury and the MEDC.

According to the Dept. of Treasury, the Ann Arbor SmartZone LDFA was designated under subsection (8). From the LDFA statute [emphasis added]:

(13) Not including certified technology parks designated under subsection (8), but for certified technology parks designated under subsections (9) and (10) only, this state shall do all of the following: (a) Reimburse intermediate school districts each year for all tax revenue lost that was captured by an authority for a certified technology park designated by the Michigan economic development corporation after October 3, 2002.
(b) Reimburse local school districts each year for all tax revenue lost that was captured by an authority for a certified technology park designated by the Michigan economic development corporation after October 3, 2002.
(c) Reimburse the school aid fund from funds other than those appropriated in section 11 of the state school aid act of 1979, 1979 PA 94, MCL 388.1611, for an amount equal to the reimbursement calculations under subdivisions (a) and (b) and for all revenue lost that was captured by an authority for a certified technology park designated by the Michigan economic development corporation after October 3, 2002. Foundation allowances calculated under section 20 of the state school aid act of 1979, 1979 PA 94, MCL 388.1620, shall not be reduced as a result of tax revenue lost that was captured by an authority for a certified technology park designated by the Michigan economic development corporation under subsection (9) or (10) after October 3, 2002.

A 15-year extension is possible, according to the staff memo accompanying the June 2 city council resolution, “if, in addition to the above requirements, Ann Arbor and Ypsilanti, as the municipalities that created the SmartZone, enter into an agreement with another LDFA [a "Satellite SmartZone"] that did not contain a certified technology park to designate a distinct geographic area, as allowed under Section 12b of the Act…”

A key requirement for an LDFA SmartZone is “significant support from an institution of higher education, a private research-based institute, or a large, private corporate research and development center.” So the possibilities for an LDFA satellite for Ann Arbor’s SmartZone include not just a governmental unit, but also an institution of higher learning.

Currently under consideration for the satellite LDFA are Adrian (Adrian College) or Brighton and Livingston County (with Cleary University). The June 17 LDFA meeting included an update on where Adrian and Brighton are in the process – as they are competing to be the partner designated by the Ann Arbor LDFA.

Only one of the two communities would partner with the Ann Arbor LDFA SmartZone.

LDFA Extension: Board Discussion

Skip Simms of Ann Arbor SPARK gave an update on the status of other communities that are candidates for the satellite LDFA that would be required for the Ann Arbor/Ypsilanti SmartZone to receive an extension. Right now SPARK is talking to both Brighton and Adrian. Brighton would be a Brighton-Howell satellite. Adrian could turn out to be an Adrian-Tecumseh satellite, he said.

Both communities are rapidly moving forward to complete required tasks as communities and LDFAs to comply as satellites. Flint is off the table – because Flint took themselves off the table, he said, and made it clear that they were not interested. Both Adrian and Brighton are on a fast-track to try to beat each other to meet all the compliance for a satellite. Simms invited Ann Arbor SPARK’s Luke Bonner to walk the board through the details of what those communities need to do.

Bonner told the board that the city of Adrian had gone through the first step of the process to create an LDFA – which was that the city council approved a resolution expressing the intent to create an LDFA and set out the district boundaries. They are moving toward the first public hearing. Adrian should have its final approvals done, he believed, by the first week in September. So this would be a new LDFA, where the city of Adrian would be the lead governmental unit. Tecumseh is going to come in as a partner to Adrian after the LDFA is created, Bonner explained.

In the case of Brighton and Howell, Brighton already has an LDFA, so their approvals are pretty simple. They don’t have to go through the time-consuming process of creating the authority itself. Howell has an LDFA that was never actually kicked off – they don’t have board members or a district. It was just approved and left in limbo, he said. So Howell is going to wait until the process is completed in Brighton and then Howell will put its LDFA together for the sole purpose of being a partner to Brighton and of overseeing the school funds to run the incubator and accelerator program.

In both cases, Bonner said, the communities have an educational institution as a partner. Adrian is working with Adrian College, which has established a business incubator program. They have built a facility and dedicated funds, and personnel are working on that program. In Livingston County, in Brighton, Cleary University is the educational institutional partner. Cleary University has an existing business incubator program that they are continuing to scale up, Bonner explained. So there are university partners in both communities.

Board chair Carrie Leahy asked how the process that Brighton and Adrian are undergoing would integrate into the timing of the Ann Arbor/Ypsilanti SmartZone LDFA extension application. In the case of Adrian, Bonner explained, they will make sure that the very first LDFA board meeting happens immediately following the establishment of the authority. The satellite LDFA has to approve the contract with the host LDFA. So the first order of business for the LDFA in Adrian will be to approve its bylaws and then move right into the approval of the agreement. That should be done by the first week in September, he said.

In the case of Brighton, they are looking at doing some informational sessions with the LDFA and the city council in July. And they look to be taking action sometime at the end of August. So the two candidate satellite LDFAs will be completing their work in roughly the same two-week timeframe.

Bonner explained that Brighton has a couple of other issues with its LDFA because it is “underwater” – as its tax capture is not at the point where it can cover debt service. It falls short by about $5,000-$6,000 annually, he said. That issue will have to be addressed, he said. They’re waiting to see what happens with the personal property tax law in the August election. That will also affect how Brighton does business with its LDFA. Leahy ventured that there could be a situation where both communities form an LDFA. Yes, Bonner confirmed.

Leahy invited attorney Jerry Lax to walk the board through the Ann Arbor/Ypsilanti SmartZone LDFA’s next steps. She knew there was a two-page summary that needed to be submitted to the MEDC. She asked Lax what else needed to be submitted.

Lax told Leahy that the only thing that needed to be submitted to the MEDC promptly by June 30 was the two-page summary. The MEDC guidelines provide that the two-page summary be emailed by June 30. That two-page summary has already been drafted, he said. Leahy told Lax she was not sure if board resolutions needed to be attached to the state summary. The guidelines don’t say so, Lax replied.

Lax continued by noting that the two city councils (Ann Arbor and Ypsilanti) have already passed resolutions supporting a 5-year extension and supporting the contemplation of creating satellites in anticipation of a potential 15-year extension. But with regard to the 5-year extension, the next thing that has to be done is for the cities to amend the existing TIF plan to accommodate a higher degree of regional cooperation. And both city councils have passed resolutions committing to engage in those discussions, he said.

The requirement is that by March of 2015, the amended TIF plan be available for submission to the MEDC, Lax explained. So the first step is just submitting a two-page summary – and everything is all set to do that, he said. And hopefully, once the LDFA is notified that the MEDC has approved the proposed 5-year extension, the next step for the 5-year extension would be the amendment of the TIF plan, he said.

Lax reported that he has communicated with Mary Fales of the Ann Arbor city attorney’s office and also John Barr, who is the city of Ypsilanti attorney – and both of them are on board with jumping into the process and meeting promptly and dealing with potential amendments to the TIF plan. Both of the city councils will have to attend to those details.

Leahy asked Lax what he meant by “attending to the details.” She asked, “What are we proposing to amend in the TIF plan?”

Lax called that a policy question for the city councils. He did not know how much attention the councils had given to the details of what exactly would need to be amended. Tom Crawford, the city of Ann Arbor’s CFO, ventured that procedurally it would be appropriate for the LDFA board to make a recommendation to the city council and then for the council to consider it. Based on his conversations with Fales and with Lax, Crawford felt that the next step would be for the LDFA to articulate changes, by providing a document with tracked changes that the councils would vote on.

Lax agreed with Crawford that it was entirely appropriate for the initial proposal to come from the LDFA board. But then it would need to be discussed by both councils – because it would involve amendments that the councils need to approve. Leahy got clarification from Lax that the TIF plan and the development plan were combined as one document.

Some back-and-forth unfolded about whether an MS Word copy of the TIF plan still existed. Leahy ventured that it could be scanned in and then cleaned up, prompting Skip Simms to observe that Adobe had improved. Steve Rapundalo said he thought he might have some old documents. Leahy ventured that probably the first order of business was to just get their hands on a copy of the old MS Word document.

A question was raised by an LDFA board member about whether the board needed to wait until the MEDC approved the two-page summary before working on amendments to the TIF plan. Lax ventured that if the MEDC did not approve the two-page summary, then any effort the LDFA board put into revising the TIF plan would be wasted.

But on the other hand, even though it looks like March 2015 is a long way off, he thought it made a lot of sense to give prompt attention to amending the TIF plan. He did not know how soon they could expect the MEDC to approve the two-page summary. Leahy wanted to know if Lax knew of any guidelines the MEDC had provided for the kind of amendments to the TIF plan that they would be looking for.

Lax said he was not aware of any additional guidelines beyond the guidelines in the statute that talk about a higher degree of regional collaboration. Even for just a 5-year extension, this higher degree of regional collaboration is something the MEDC is looking for, he said. Leahy asked Skip Simms if there was anything he recalled from his discussions with the MEDC by way of guidelines. Simms said the key point that the MEDC is looking for had been described by Lax – broader regional collaboration.

The other thing the MEDC has said, Simms added, is that this is an opportunity for the LDFA to make changes to elements of the TIF plan that might have been too restrictive. It would be an opportunity to look at the TIF plan and the development plan with a clean slate and change anything and everything that they would like to see changed, he said. You can start with the core document if you’re happy with most of it, he allowed, but this is the opportunity to make changes.

Once the TIF plan has been changed, it’s unlikely that it would be changed again for another 15 years, Simms ventured. So now would be a good time to take the opportunity to insert everything that they wanted to put into a new TIF plan that might have been missed 15 years ago, he concluded.

Rapundalo suggested that the LDFA board, or a subgroup of the board, go through the TIF plan line-by-line from a conceptual viewpoint and ask about everything that’s included: Is this still valid today? If it is, then leave it in – if not, then take it out and perhaps replace it with something else.

A consensus that seemed to evolve from the board discussion was that the LDFA board’s contract committee would be a suitable group to take up the task of reviewing the TIF plan. Leahy said the issue of infrastructure would be a good topic to review in the TIF plan – because the Ann Arbor city council is suggesting it would like to see infrastructure projects undertaken, but there are certain kinds of infrastructure projects that the LDFA cannot undertake, because they are not in the plan.

Rapundalo suggested it would be useful to collect some best practices from other SmartZones in the state as well as other communities with high-tech concentrations, and try to incorporate some of that into the new plan. Leahy asked Lax if he could inquire with Roslyn Zator at the MEDC to get some direction about what the MEDC would like to see in the TIF plan amendments. Leahy also asked Skip Simms which other SmartZones he thought would be good to look at, as far as best practices – Traverse City, Houghton, Grand Rapids?

Simms said that what he heard from everyone else is that they are modeling everything after Ann Arbor SPARK. Nobody is saying they are doing it better than Ann Arbor SPARK is doing it, he said. Nonetheless, Simms allowed, it would still be important to reach out.

Simms said that Grand Rapids was undergoing a revision, so it would be good to contact Grand Rapids. Rapundalo agreed with Simms’ point about Grand Rapids, saying that Grand Rapids is making changes to their SmartZone that would set them apart structurally from other SmartZones. He thought it would be important to take a look at that and see why Grand Rapids is making those changes.

Simms pointed out that Grand Rapids is also considering applying for a 15-year extension of its LDFA. In terms of out-of-state organizations, Simms suggested taking a look at TechColumbus. Leahy asked Simms to see if he could get a copy of the TechColumbus development plan.

Lax circled back to the idea that the LDFA board should make the first proposal to the city councils about the needed changes to the TIF plan. But he also pointed out that the Ann Arbor city council had expressed interest in seeing greater attention paid to issues like infrastructure. He suggested that the LDFA take into account anything the councils might be interested in seeing at the outset. That way, whatever is ultimately proposed would stand a greater likelihood of being approved by the city councils.

At that point, Lax noted that March 2015 seems like a long way off, but given the potential complexity, it creeps up rather quickly. So the discussion should take place sooner rather than later. He suggested getting some clarity about what people may think they want to know, and what topics they have not known enough about up until now. That would help focus the discussion on what information is available, he said.

Although there are different timelines for requirements to apply for a 5-year extension of the LDFA compared to a 15-year extension, the consensus that evolved at the June 17 LDFA board discussion was that they should be handled pretty much simultaneously. Lax pointed out that the 15-year plan would involve a satellite and there would be some coordination among the various municipalities involved, but some room could be left in the 5-year plan extension to accommodate the addition of a satellite LDFA. Jacobson ventured the right approach would be to redline an amended TIF plan for both a 5-year plan and the 15-year plan.

Bonner suggested that everything be done, based on the idea of a 15-year agreement, with language incorporated into the documents to include satellite LDFAs. Then, if it turns out that only the 5-year extension is approved, the additional language due to the 15-year plan can simply be eliminated through an administrative amendment. The idea would be that it would be convertible to a 5-year plan in relatively short order. Lax agreed that much of the content would be the same in either case – 5-year plan compared to 15-year plan. Lax reiterated that he felt it made sense to think of it all as a unified project.

Crawford pointed out that after an amendment is prepared, you have to go through a process of notifications and public hearings – and it was undesirable to have the document change significantly during that process. Lax suggested that the 15-year component of the plan could be separated out as an “add on.”

Jacobson ventured that they need to think it through so that they have two different versions in their back pocket – that can be pulled out, based on what the MEDC approves. Lax also suggested having prompt discussions with the MEDC about other plans that could be used a model. The MEDC might have some guidance about how complex the amendments to the TIF plan might be, related to a 5-year extension, if a community is also contemplating a 15-year extension.

Simms pointed out that the MEDC review would happen after the council action. Lax allowed that was true, but ventured that the MEDC might have something useful to say in advance of that.

The question was raised about whether Houghton had pursued both types of extension simultaneously – but Simms thought that Houghton had pursued a 15-year extension from the get-go. Simms was not sure if everything had been completed in Houghton, but things have been completed in Marquette, which is supposed to be the satellite. He thought that the current status of that 15-year extension was: Discussions are taking place about the agreement between the satellite LDFA, the host LDFA and the MEDC. He pointed out that that was a whole additional agreement that would need to be amended and addressed.

About the timing, Simms said here’s what “your contractor [Ann Arbor SPARK] is prepared to do: We are prepared to have this dialogue with the LDFA relative to the amendments and changes to the TIF/development plan through the summer.” In September 2014, it will be known whether Brighton or Adrian or both are “real.” And they will know by Sept. 30 whether there’s a legitimate 15-year proposal to submit to the MEDC.

At that point, everything could already be in place for either the 5-year extension or the 15-year extension. Then in early October, “Bang, we go forward with either the 5-year plan or 15-year plan, because it will be clear which one it is,” Simms said. By the end of October, there could be a proposal to give to the two city councils for approval.

Jacobson ventured that it would also be clear from the state at that point which option could move forward – the 5-year or the 15-year option. Lax asked Simms if he knew when the MEDC was likely to give a reaction to the two-page executive summary, as related to a 5-year extension. No, Simms told Lax. But as a point of reference, Simms said the MEDC had responded to Houghton’s application very quickly.

Given the relationship between Ann Arbor and the MEDC historically, Simms had no doubt that MEDC would respond quickly. [The MEDC's current CEO, Michael Finney, is the former CEO of Ann Arbor SPARK.] The MEDC recognizes the importance to all parties – including the MEDC – to making this happen as quickly as possible for everybody, he said. So he was confident that the MEDC would respond rapidly. Leahy said she could get the two-page executive summary submitted that very day when she returned to her office.

Jacobson asked if Simms was suggesting that the contract committee wait until September or October to start reviewing the TIF plan amendments. Not at all, Simms replied. Simms thought the LDFA board’s contract committee ought to meet within the next three weeks and begin this process – because the majority of it is relevant, whether it is a 5- or 15-year extension.

Jacobson asked a question on the 15-year extension, which related to some feedback he thought the MEDC had given to the Ann Arbor/Ypsilanti SmartZone LDFA. At one point the MEDC had given the Ann Arbor/Ypsilanti SmartZone feedback, he thought, that in order to include a satellite that is subsidized by a third-party like a university, the MEDC would expect Ann Arbor to funnel 10% of the expenditures to Ypsilanti. He thought that had been presented as an idea by the MEDC, he said. Is that a requirement that should be considered when the LDFA prepares the 15-year application? Jacobson asked.

Simms said it was something that needed to be looked at and discussed, adding that the LDFA probably needed to go back to the MEDC to get some definitive language.

The idea of funneling money to Ypsilanti had come up in a discussion between the two CEOs – Ann Arbor SPARK CEO Paul Krutko and MEDC CEO Michael Finney, Simms said. Whether that would be a firm position or not has not been clarified. Jacobson wondered if that would be clarified before a 15-year proposal would be submitted. Yes, Simms said, that will be clear. The other thing that MEDC is pushing is the idea of collaboration.

Ypsilanti has been in the Ann Arbor/Ypsilanti SmartZone all along, Simms said, but “Ypsilanti has gotten squat.” Collaboration would mean that it’s a way to get something, he said. What the LDFA has been providing needs to extend outside the city limits, Simms said. So that needs to be considered in thinking about the modified development plan, he said.

The overwhelming benefit at the end of the day, Simms continued, is a significant sum of money that is coming to benefit the city of Ann Arbor that would not be coming at all – not a dime of it – if the LDFA did not get the 15-year extension. The benefit to the city is still enormous, Simms said. So to extend a little bit of that to Ypsilanti seems like a reasonable action, he concluded.

Leahy came back to the point that the next step is to submit the two-page executive summary to the MEDC. She told her board colleagues that she would submit that to Roslyn Zator. The next steps would be for city of Ann Arbor financial services staffer Ken Bogan and Ann Arbor SPARK – as well as Stephen Rapundalo – to look for the MS Word version of the TIF/development plan.

In the next three weeks, the contract committee would schedule a meeting to start going over the changes to the TIF/development plan that they think are appropriate to take to the city councils. Bonner ventured that the satellite LDFA communities might need some support as they go through their process – and he thought it might be appropriate for the LDFA to provide that support in the form of legal counsel from Jerry Lax. That way they could make sure that the resolutions and the agreements are in line with what the Ann Arbor city council would want to see.

The contract committee set a meeting for Tuesday, July 8 to start going over the TIF plan.

Politics of an Extension

The LDFA board’s June 17 discussion included acknowledgment that an extension of the LDFA’s term would likely need to satisfy recent concerns expressed by the Ann Arbor city council:  (1) investments in high-speed fiber telecommunications; (2) audit of jobs creation figures; and (3) clarification of school tax capture by the LDFA.

Politics of an Extension: Jobs Audit

Based on LDFA board chair Carrie Leahy’s conversations with Paula Sorrell, the MEDC ex-officio representative on the LDFA board, and some email exchanges with Rosalyn Zator, it does not look like any other SmartZones are doing audits of job creation numbers. Sorrell said the MEDC would be looking specifically at its grant to SPARK– and not all of Ann Arbor SPARK – just those things that are associated specifically with the grant.

Sorrell explained that there are process audits and financial audits – and they take place every 2 to 3 years. Those are audited by the state, she said. As far as job creation numbers go, those are collected monthly, she said, and those are specific to grants. Spot-checking is done on those numbers as well.

Stephen Rapundalo asked Sorrell to describe how the spot-checking was undertaken. He ventured that all of the numbers are essentially self-reported by the companies. So are you randomly calling companies and saying, “Hey, you said this,” and verifying the numbers? Is that how it works? he asked.

Sorrell told Rapundalo that in a start-up tech company, it would be typical to see a few jobs added at a time. Eventually the only thing that can be done is to just work down the list of all the companies that had been served and to verify whether the numbers that had been quoted were in fact accurate or not. Sorrell said the MEDC also gets reporting from multiple areas, and most of the companies use three or four other grantees at a time, so they can check to see if anybody is reporting different numbers.

Petersen also noted that the previous evening’s council meeting had included quite a bit of discussion about the appropriate metrics – in terms of return on investment. The question had arisen with respect to projected job creation as opposed to actual job creation, she noted.

Tom Crawford, Ann Arbor’s CFO, said he’d heard some the comments about projected versus actual jobs created and he was not sure exactly how that applies. When a company comes in, they are not necessarily incentivized to give you a number that they would overshoot. The system is designed so that they give you a higher number. That’s not a detriment to the entity that is providing the incentive, Crawford said, because the incentive is based on the actual jobs that are provided. He wasn’t sure that everyone understood that point. Historically the state has paid grants based on actual jobs. Companies were only paid tax credits for actual jobs, he said.

For SPARK’s business development team, Luke Bonner said, its metrics for counting jobs are based on what the company says it will do in a public announcement – based on a tax abatement application, or a state grant they are receiving. And those numbers are what are included in Ann Arbor SPARK’s successes annually, Bonner explained.

For example, the company says that they are investing $2 million and creating 75 jobs in Ann Arbor, and that goes into SPARK’s annual report for successes, he said. SPARK continues to meet with that company over time. However, SPARK does not have to track what that company does over time, because they are not committed to SPARK to report anything. If it is a tax abatement, it’s part of the letter of agreement that you can go back and ask them how many jobs they have created. Or if it’s a state grant, the company has to report the actual jobs that they create to the state.

What SPARK’s business development team has been doing that is a little different now, however, is starting to look at the number of jobs a company has created this year as opposed to last year, Bonner said. That allows the business development team to start to measure the health of the local economy. So if a company adds 100 jobs last year and 200 this year, SPARK want to be able to show that difference.

But the LDFA uses really different metrics, Bonner said. LDFA metrics are those from the SPARK entrepreneurial services team. Those are two different areas, he stressed.

Sally Petersen, the city council’s representative on the LDFA, ventured that the council would like to see metrics that show projected versus actual jobs created. Bonner told Petersen that the LDFA should work with Skip Simms and Bill Mayer to look at the programs they’re running, and to figure out the best metrics to report that would satisfy the MEDC, the LDFA board and the city council.

Crawford added that projected jobs numbers are typically associated with incentive-based financial support – which is not what the LDFA board deals with. Stephen Rapundalo pointed out that the LDFA board’s own metrics committee had reviewed the kind of metrics that SPARK reports – and SPARK is already required to report a great deal of information to the MEDC.

Bonner went on to explain that internal to SPARK, they use a different nomenclature to talk about “retained jobs.” The entrepreneurial services team will say that “retained jobs” mean one thing, whereas for the business development team, “retained jobs” mean something else. For the business development team, Bonner continued, if a company says they’re going to move out of this state with their 100 employees and add another 200 employees elsewhere, and through the efforts of SPARK the company were to actually stay, the business development team would characterize that as 100 jobs retained – if not for the effort of the community and the state.

But for the entrepreneurial services team, when a company comes to SPARK, with, say, two employees, then that is their baseline – two retained jobs for when SPARK entrepreneurial services started to work with the company. Mayer added that he refers to the “retained jobs” in entrepreneurial services as a “snapshot” of the growth curve of a start-up. At a moment in time when SPARK “touches” the company, they say the retained number of jobs was three. And then six months later the retained number of jobs is four. That equates to one job created, Mayer concluded.

Board chair Carrie Leahy noted that the  issue of an independent jobs audit had been brought up in multiple city council meetings. Petersen said that a lot of the “noise that is out there” has to do with accountability. Putting aside accusations about whether SPARK is or is not inflating job creation statistics, it’s important to focus on the interest in accountability, she said.

If Ann Arbor were to be the first SmartZone in Michigan to do an independent audit, that would reflect positively on Ann Arbor, Petersen said. That would show that the Ann Arbor/Ypsilanti SmartZone is not afraid of being accountable, she added. The components of such an audit are still unknown, because no one else has done it before, she said. So she felt it was important for the LDFA board to pursue that direction with an intention to do such an audit.

Eric Jacobson asked if Petersen was talking about an audit of metrics or a financial audit of the dollars. Petersen explained that the interest was an audit of the job creation numbers. Stephen Rapundalo ventured that such an audit would have financial implications. How much would it cost? In addition, was the LDFA also planning to do a financial audit?

Jacobson explained that the financial audit is to be done about every two years and usually in the fall. He then explained that a financial audit of the LDFA is done every year in conjunction with the city of Ann Arbor’s audit. Another kind of audit is an audit of the LDFA’s contract with SPARK – which is an audit on contract compliance.

Jacobson said that the firm that had done the financial audit last time had done a great job from his perspective, so he would like to use the same firm again – Abraham & Gaffney. It would be an audit by the LDFA of Ann Arbor SPARK, using a third-party, to go through and check all the LDFA dollars that are going to SPARK, to check to make sure none of the funds had been misappropriated according to the terms of the contract, he explained.

Rapundalo suggested that the scope of the financial audit could be expanded to include the jobs numbers. Leahy asked if an inquiry could be made with Abraham & Gaffney to see how they would propose to check those numbers. Petersen asked if Abraham & Gaffney could be used just because they had done the audit previously – and wondered if they needed to use a bid process and accept the lowest responsible bid.

Jacobson told Petersen that Tom Crawford, the city of Ann Arbor’s CFO, was checking into that issue. Some back-and-forth between Petersen, Leahy and Jacobson led to a tentative consensus that the auditor would be asked to develop a proposal.

But SPARK’s Simms expressed some skepticism: “Wait, wait, wait!” Earlier in the meeting, Bonner had done a nice job of explaining that the job numbers that are projected come from SPARK’s business development team, Simms said. Entrepreneurial services has never provided the LDFA or anybody else “projected” jobs, Simms added. [The LDFA-SPARK contract approved by the LDFA board at the June 17 meeting includes a requirement for reporting to the LDFA "projected new employees" for Phase IV companies: "These reports shall include but not be limited to the following ... 4) the companies that receive Phase IV assistance, description of assistance, number of full time equivalent employees and projected new employees."]

Rapundalo told Simms that they were talking about the metrics that SPARK’s entrepreneurial services team does currently report, which includes jobs created and jobs retained. Petersen explained that this audit was not focused on the city’s contract with SPARK for the business development services. Leahy said that what they were hearing from the city council is that the LDFA is just accepting what SPARK says with no verification.

Sally Petersen is the city council’s representative to the LDFA board.

Simms replied that there has in fact been an audit: “We somehow allowed the thought to occur that there has never been one.” Leahy told Simms that they reported to the city council that there had been a contract audit. But Simms told Leahy he was not sure the council had actually heard that.

So this won’t be the first audit, Simms concluded. Rapundalo felt the council had heard clearly that there had previously been a financial audit. Leahy said they had reported to the council that SPARK has undergone a financial audit, and they were clean and that the results of that audit have been posted.

Petersen wrapped up by reiterating the importance of doing an independent audit of the metrics. The LDFA needs to provide documentation, she said. She wanted an independent audit, even if that meant the Ann Arbor/Ypsilanti SmartZone was the first in Michigan to do it. Ann Arbor would be putting its best foot forward and saying: Here’s what an independent audit of job creation numbers actually looks like. The Ann Arbor/Ypsilanti SmartZone needs to focus on the accountability outcomes first, Petersen concluded.

Politics of an Extension: Infrastructure, City Fiber Initiative

With respect to infrastructure, Stephen Rapundalo asked if the MEDC could provide information about what other SmartZones and LDFAs had done in the way of investing in infrastructure. Paula Sorrell said she had put Carrie Leahy in touch with MEDC contacts. And by-and-large, there are not a lot of SmartZones that have undertaken infrastructure projects.

Leahy reported that so far she’d found the use of TIF for infrastructure on road improvements and sewer connections in Grand Rapids. In Grand Rapids, TIF had also been used for marketing in the SmartZone and for equipment and furniture – updates to their business incubator – which the Ann Arbor/Ypsilanti SmartZone already uses money for. Leahy ventured that furniture in incubators is not what the Ann Arbor city councilmembers mean when they talk about infrastructure. She also described a bridge project in Grand Rapids where there was a question about whether TIF funds were used – and it turned out that TIF funds were not used.

The Ann Arbor/Ypsilanti SmartZone development plan, Leahy continued, states that infrastructure such as roads and sewers and certain other infrastructure are already complete in the SmartZone. So if there were some kind of project like that, she ventured that the development plan would need to be changed.

The one kind of infrastructure project that keeps coming up, Leahy said, is high-speed fiber telecommunications. That seems to be the only type of infrastructure project that has been floated that is specifically addressed in the current development plan for the Ann Arbor/Ypsilanti SmartZone, she said. If that were something the LDFA wants to pursue, then it would not require altering the development plan, she said.

Leahy wondered who would initiate that kind of project. Is it the LDFA that says, We should put money toward fiber? Or does the Ann Arbor city council tell the LDFA to pursue it? “That’s a good question,” allowed Sally Petersen, who is the Ann Arbor city council’s representative to the LDFA board. Like Leahy, she wondered what the next step might be toward high-speed fiber. If it would be helpful for the city council to pass a resolution on the topic, Petersen said she would be willing to try to move that forward.

Tom Crawford is the city’s chief financial officer, and serves on the LDFA board in an ex officio capacity.

City of Ann Arbor CFO Tom Crawford told Petersen that the city staff was working on a proposal for high-speed fiber that would be brought forward. Asked what the timeframe for that project would be, Crawford said it would be some time during FY 2015. [That means before June 30, 2015.]

As for details about projected costs, Crawford told the board that it was a proposal that would be “worthy of this group.” Rapundalo recalled Ann Arbor’s ultimately unsuccessful Google Fiber initiative, toward which the LDFA board at the time had pledged $250,000.

Rapundalo wondered how the LDFA could reach out to the high-tech community to get input on what that community feels is lacking in terms of high-speed infrastructure. Crawford responded to Rapundalo by saying that he would look to Skip Simms specifically, or Ann Arbor SPARK generally to facilitate that inquiry. He ventured that Ann Arbor SPARK conducts that kind of inquiry as a matter of course.

But Simms told Crawford that Ann Arbor SPARK does not do that in a formal way – characterizing it more as an ad hoc approach. The main mechanism for that is through the business development team, Simms continued, through their conversations with the more mature technology companies about their needs. “So far, quite honestly, we’re not hearing any outcry that we need a bigger pipe,” Simms said.

What SPARK is hearing, Simms continued, is “I need job training. I need people with skill sets. I need office space downtown. Those are the things we’re hearing from those companies. They’re not saying … fiber.”

But Simms allowed that could change in five years. Video technology is requiring more capacity – more storage space. So maybe what is needed is more online technology facilities, as opposed to fiber – but who knows? Simms said. He added that it’s important to be careful going forward that the LDFA doesn’t lock itself in and limit itself. Whether the proposal comes from the city council or from Ann Arbor SPARK or from city staff, Simms urged that the approach be kept fairly broad that whatever unfolds 10 years from now – and no one knows what that might be – it can be accommodated.

Crawford agreed with Simms’ remarks. The existing tech companies, Crawford said, are currently very well served – because if you want very good high-speed service, you can just pay for it. What the city has been considering is a broader look that would not necessarily address the issues of technology companies, but that would be a real asset and attraction for new companies to come in and other kinds of companies to start up. So the city’s fiber initiative would not necessarily address the need that existing companies have.

Crawford characterized it not as “incremental” but rather as “supplemental.” It would not take away from anything that Ann Arbor SPARK is already doing, Crawford said. Petersen ventured that there would be some “positive externalities” that would come from the installation of high-speed fiber, which would benefit residents as well. So if this project were viewed as affecting “community prosperity,” it would also help start-ups. Petersen thought there were also a lot of existing, mature businesses and residents who would be helped as well.

Crawford responded to Petersen by saying that it’s somewhat of a chicken-and-egg problem. Without high-speed fiber, innovations are not occurring and we are falling behind worldwide on innovation in this kind of thing, Crawford said.

Responding to a question about whether the city’s high-speed telecommunications fiber project would extend to the neighborhoods or just to the downtown area, Crawford explained that the concept is to include the entire city. Eric Jacobson said that his “gut feeling” was that demand for high-speed fiber capacity from residents would be possibly more than the demand from businesses – just because at home, people are pulling down massive amounts of bandwidth for video programming and things like that.

For a business, there’s some of that, Jacobson added, but perhaps not as much as for residents. He works for a software company [Amplifinity] and all of his company’s bandwidth to the outside world is provided by its hosting facility. But for his company’s office space, the bandwidth requirements are more than met by commercial providers, he said.

Crawford responded by adding that the price point that Americans are paying for the service they get is high compared to international standards, and speeds are uneven for uploading compared to downloading. Improving bandwidth in both directions has the potential to change the way that people do business, Crawford said. It’s not just about adding bandwidth to the business that you have – it’s potentially changing the way you use bandwidth.

Leahy brought the conversation back to the concerns of the Ann Arbor city council.

Leahy told Jerry Lax that she understood the current TIF/development plan limited how TIF funds could be expended on infrastructure. She asked him to provide some additional background. Lax told her he wanted first to look at the TIF/development plan a little more closely, because he has not investigated it in detail. Whatever conclusions might be drawn about its current limitations, he said, the real question is: What would the LDFA board like it to see? The next question is whether there are concerns either in the enabling legislation or elsewhere that would make it difficult to have the TIF/development plan say what the LDFA board has concluded that it wants the plan to say.

Lax wanted some additional time to take a look at what the constraints are in the current TIF/development plan, and also the question of whether in general there might be some limitations on altering the TIF/development plan. Right now, Leahy said, the TIF/development plan says that the roads and sewers and lighting are complete and basically done in the Ann Arbor/Ypsilanti SmartZone district. The only real item that is addressed is high-speed telecommunications fiber.

Lax cautioned that even if that was an accurate statement at one point in time, it might no longer be accurate. Leahy thought that the enabling legislation does in fact permit infrastructure investments, pointing out the Grand Rapids had done it. Lax allowed that his recollection of that portion of the enabling legislation was that there is not a constraint, but he would like to take another look at that.

Luke Bonner then interjected, asking if he could be a “wet blanket” based on his experience. If you look at the local development finance authority legislation that was put together in the 1980s, it’s important to note that’s when things were terrible in Michigan, he said. An LDFA was a tax increment financing mechanism that allowed for reimbursements of infrastructure costs to spur certain kinds of investments – basically for manufacturing in high tech, engineering, and alternative energy, he said. And that is the only type of project that those TIF dollars could be used for – it was very specific.

Then came along the amendment to the LDFA legislation in 2000 that created SmartZones, Bonner said. What the state did was create a new kind of TIF that was a “certified technology park.” That basically meant that if you had an existing LDFA, or if you wanted to create one, you could apply to the state to have a certified technology park designation – and that certified technology park designation basically allows an LDFA to capture school taxes to support business incubation and acceleration services.

The deal that has been put together on almost all of the certified technology parks, Bonner continued, is that if the state is going to contribute funding, there has to be some kind of local contribution – a local match. So if an LDFA already existed, and the LDFA had debt obligations – because it had built roads and bridges and sewer pipes – then the state treasury considered that to be the local commitment: Your local taxes are being used to create local economic development, and so you are allowed to capture school taxes, Bonner said.

In the case of Ann Arbor, there was a downtown development authority (DDA) district that was already established and that was already investing money. The infrastructure in which the Ann Arbor LDFA could invest could serve an incubator or an accelerator program. For example, an incubator could be built and you could run high-speed telecommunications fiber to that incubator. You could, under the enabling legislation [even if not under the Ann Arbor LDFA TIF/development plan] build a road or a sewer connecting to the incubator.

Where the challenge comes is trying to use school millage capture to build out general infrastructure that is not tied to an incubator. Bonner reported that the city of Rochester Hills was actually refused by the Michigan Dept. of Treasury, when the city wanted to use school taxes to help build out local infrastructure. The treasury had said: No way, you have to use the DDA, or a [non-SmartZone] LDFA to do that. The school millage can be used by a SmartZone LDFA to do infrastructure improvements – just as long as it is for an incubator, Bonner contended.

Leahy ventured that the restriction was not that specific and that it could be for infrastructure improvements anywhere in the SmartZone district. That’s what Grand Rapids had done, she thought. Bonner questioned whether what had happened to Grand Rapids was infrastructure improvements through a SmartZone LDFA or through an already-established LDFA.

Stephen Rapundalo said he knew some of the background of the situation in Grand Rapids and characterized the interpretation of the statutory language in that case as “rather liberal.” Grand Rapids had somehow got away with something, Rapundalo said. He told Bonner that he was on the right track in describing how things were supposed to function according to the statute. How Grand Rapids had done what they did, Rapundalo had no idea. Bonner pointed out that Ann Arbor’s LDFA is set up only to manage the use of the school taxes.

The LDFA in Ann Arbor is not set up in the original sense of the LDFA Act passed by the state legislature in the 1980s – which was to set up a mechanism to fund infrastructure improvements to attract manufacturing high-tech and engineering companies. But what Ann Arbor does have is a DDA that can make those improvements as well, Bonner pointed out. He had never looked at the Ann Arbor DDA plan before, but he knew that the DDA built parking decks and made road improvements.

The DDA has a lot of flexibility to make infrastructure improvements within the district, he said – whether it’s high-speed fiber or parking decks or roads or sewers. He noted that the geographic area of the LDFA and the DDA in Ann Arbor are the same district. He suggested again that it would be a good idea to develop an LDFA 101 presentation for the city council to explain how all these entities are very separate and distinct from one another.

Lax pointed out that one question is how the existing enabling legislation is interpreted. He also pointed out that legislation can be changed – although he would not want to suggest that as anyone’s first line of attack – because that is a “forever project.” Leahy ventured that right now the plan does not allow for the funding of the kind of infrastructure projects that the city council is interested in. Bonner thought that the state treasury would challenge an attempt to use LDFA school millage capture to run fiber to the premises in Ann Arbor citywide.

Politics of an Extension: School Tax Capture

Earlier in the meeting, Skip Simms had argued for a 15-year extension. He said if the LDFA did not get the extension, a significant sum of money would not be coming to benefit the city of Ann Arbor.

Stephen Rapundalo is a former city councilmember who serves on the LDFA board.

Sally Petersen picked up on Simms’ observation about the source of funds and the reimbursement from the state. One of the issues that the city council is concerned about, Petersen said, is whether the TIF capture from the Ann Arbor/Ypsilanti SmartZone is coming from the state school aid fund. “That’s still out there,” she said.

Stephen Rapundalo responded to Petersen by asking: “What’s it take – for them to understand unambiguously how that works? I mean we have told them. Why is the onus on the LDFA to have to show them that?” The LDFA has nothing to do with that aspect of funding, Rapundalo continued, saying that all the LDFA knows and understands is how the calculation is made, and therefore how much money is allocated to the LDFA board for the purposes stated in all of the various agreements. [See above for statutory interpretation indicating that the school aid fund is not reimbursed for the Ann Arbor/Ypsilanti LDFA SmartZone tax capture.]

Luke Bonner of Ann Arbor SPARK suggested that it is a lot to ask of current Ann Arbor city councilmembers, who were not around when the LDFA was created, to have a clear understanding. He suggested that the material needed to be broken down into a kind of LDFA 101 presentation.

Rapundalo expressed frustration – because such presentations have been given over the years, which he thought were really dumbed-down. Jerry Lax quipped that maybe they needed better diagrams. Rapundalo ventured that with respect to the school aid fund reimbursement, the council needed to hear from someone at the state level. He did not know who that person might be, but it could be somebody at the highest level of the MEDC, or the Dept. of Education – but it should not be from the LDFA.

Bonner suggested that it might be someone at the Dept. of Treasury – because the treasury department, more so than the MEDC, has to put their stamp of approval on the TIF plan. The state treasury is responsible for taking the money and reimbursing the school aid fund.

Rapundalo said he would ask Ann Arbor SPARK to identify the person who could explain that. “That needs to be cleared up, as much as we can, once and for all,” Rapundalo said. Lax added that many of the issues that city councilmembers might have concerns about are based on the actions of the state legislature in creating the statutory scheme in the first place. So if people have questions about it, they might very well be legitimate questions that need to be addressed – but the fundamental point is that for better or for worse, this is what the state legislature determined would be the mechanism.

If people have questions or doubts or criticism about how reimbursements are made, and where it comes from, and what bucket the money is taken out of, that’s not something that the city council determined or that the LDFA determined, Lax said. That’s something that the state legislature determined in adopting the state legislation in the first place.

Petersen said there are two things that concerned her about how the city council received this kind of information. The council might decide that they don’t like the mechanism at the state level, and to prove that point, the council might not want to support a 15-year extension of the LDFA. There are also remaining questions about whether the city of Ann Arbor public schools are actually getting reimbursed. She understood that representative Jeff Irwin had done some analysis of that, but she was not sure what it was, as she had just heard about it.

Lax ventured that maybe councilmembers feel that the schools ought to be getting more money – but the question of whether the schools are getting more money is a separate question from whether the way the schools are being reimbursed is fair. If the schools in general are getting a dollar-for-dollar equivalent for the captured taxes, then “so far so good,” Lax said.

Petersen stated that city CFO Tom Crawford has stood up and stated that the schools are getting reimbursed. Rapundalo observed that Crawford’s statement does not satisfy some councilmembers, and that’s why they need to hear from somebody who can walk them through the calculations and the whole process at the state level.

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The version of the Chapter 7 ordinance change given final approval by the council would allow for several million dollars in additional TIF capture by the DDA, compared to a different version that had been tabled. The version in front of the council on Nov. 18 set a cap on DDA TIF revenue that will not apply at all until FY 2017 and will result in roughly $6.1 million of TIF revenue to the DDA that year. It will mean an estimated return of $300,000 total to the other taxing jurisdictions in that year.

On Nov. 7, during deliberations when the council gave the change initial approval,  the council also added a requirement that the DDA budget at least $300,000 each year for affordable housing projects, with “affordable” defined as targeting residents with 50% area median income (AMI).

The outcome of deliberations at the council’s Nov. 7 meeting began with a decision to table a version of the Chapter 7 changes that had been under consideration by the council since Feb. 19, 2013.  The council then gave initial approval on Nov. 7 to a different version of the Chapter 7 changes, which were ultimately given final approval on Nov. 18. Those recommendations came from a committee of DDA board members and city councilmembers that has met four times since Aug. 26, most recently on Oct. 30.

The joint committee of councilmembers and DDA board members was established at the council’s July 1, 2013 meeting – after the first version of the ordinance change achieved initial approval at the council’s April 1, 2013 meeting. Representing the council on the joint committee were Stephen Kunselman (Ward 3), Christopher Taylor (Ward 3), Jane Lumm (Ward 2) and Sally Petersen (Ward 2). Representing the DDA were Sandi Smith, Roger Hewitt, Bob Guenzel and Joan Lowenstein.

The amount of TIF not captured by the DDA will be proportionally divided among the taxing jurisdictions, which together levy roughly 27.5 mills of taxes in the DDA district. Proportionally, that translates to: city of Ann Arbor (60%), Washtenaw County (21%), Washtenaw Community College (13%), and Ann Arbor District Library (6%).

The $300,000 total to be divided by the other taxing jurisdictions in FY 2017 compares to roughly $2 million that would have been divided among them under the tabled version of the Chapter 7 revision. The tabled version essentially clarified the enforcement of existing language in the ordinance. In both versions – assuming that new construction in the DDA district continues to take place at a healthy pace – taxing jurisdictions would continue to receive additional funds into the future after FY 2017.

Under the change approved on Nov. 18, the city’s share of the estimated $300,000 in excess TIF in FY 2017 will be about $180,000. But that will be distributed proportionally across the city’s funds based on the levy associated with the fund. For example, out of the $180,000, the general fund will get about $65,000. That compares to $430,000 that the city’s general fund would have received based on the tabled Chapter 7 approach.

Although the committee did not put forth a recommendation on governance, the tabled version included various provisions on changes to governance. Those governance revisions included: (1) a two-term limit for service on the DDA board; (2) a prohibition against elected officials, other than the mayor, serving on the DDA board; and (3) service of the mayor on the board (a possibility explicitly provided in the DDA state enabling legislation) subject to annual approval by the city council. If the council did not approve the mayor’s service on the DDA board in a given year, then that spot would go to the city administrator, according to the tabled version.

On Nov. 7, after debating the issue, the council amended the new version to include a limitation on terms. The version given final approval on Nov. 18 will impose a limit of three four-year terms, with additional terms possible only after a four-year lapse.

The council held a public hearing on this item at the Nov. 18 meeting, with nine people addressing the council – including DDA board chair Sandi Smith. Most speakers were supportive of the DDA, although some called for more oversight and equity with other taxing jurisdictions. Deliberations by councilmembers lasted about 30 minutes and included some harsh criticism from Taylor, who called the ordinance change a power play.

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

Downtown location of the Ann Arbor District Library (Photo by the writer, Sept. 21, 2013)

Other taxing jurisdictions besides the city of Ann Arbor – entities that also have a portion of their levied taxes captured by the DDA – have something at stake.  Those units are Washtenaw County, Washtenaw Community College and the Ann Arbor District Library. The topic of other taxing jurisdictions’ interest in the Chapter 7 revisions has been raised at three public meetings since late August: (1) at an Aug. 26 meeting of a joint city council and DDA board committee; (2) at the Sept. 15 city council Sunday night caucus; and (3) at the Sept. 16 city council meeting.

Some councilmembers have speculated about the current view held by one of the other taxing jurisdictions in particular – the Ann Arbor District Library. AADL director Josie Parker wrote a letter to mayor John Hieftje in January 2012 outlining the library’s position on the matter at the time, something that has been widely reported. The Chronicle only recently became aware that a similar letter had been sent by Parker to the Ann Arbor DDA in August 2011.

Those letters articulate a view that’s consistent with op-eds published in The Chronicle on the topic – that the DDA owes more in repayments to the taxing jurisdictions than the DDA agreed it needed to pay back in May 2011. Further, the AADL’s position, as expressed in the two letters from Parker, is to reject the DDA’s most recent and current interpretation of the city ordinance  – which was stated only after the DDA had already made repayments of excess TIF capture in 2011. Those repayments had been made to cover several prior years, because the required repayment had been “overlooked.”

The DDA’s subsequent interpretation was that the DDA did not owe the money it had returned in 2011. DDA officials maintain that as long as the DDA had debt obligations, it would also not owe any return of excess TIF to the other taxing jurisdictions in the future. Based on calculations by The Chronicle, the DDA’s current interpretation probably deprives AADL of roughly $55,000-$60,000 annually, compared to the kind of interpretation AADL gives the ordinance. That amount could increase, or decrease, in the future.

The position articulated in Parker’s August 2011 letter includes the statement: “The Library fully intends to enforce its rights for all past and future amounts owed to the Library as a result of excess TIF capture. However, the Library would prefer to resolve these issues without court involvement.”

Responding to a question in a telephone interview with The Chronicle on Sept. 19, 2013, Parker stated: “The position of the Ann Arbor District Library is still accurately reflected in those letters.”

That statement appears to resolve any uncertainty that might exist about the AADL’s current position. At the Sept. 15 Sunday night caucus, for example, Sabra Briere (Ward 1) had ventured that Parker’s letter to Hieftje might be appropriately regarded as a “snapshot in time” and might not reflect the AADL’s current position. And Christopher Taylor (Ward 3), during the Aug. 26 joint committee meeting, appeared to discount the current relevance of the letter to Hieftje by asking what year it had been sent.

However, about the AADL’s position on the DDA TIF capture taken in 2011, Parker stated this week: “It has not changed.”

The Chapter 7 revisions that have already received initial approval would essentially clarify and enforce the existing language in a manner that would ensure return of the excess TIF capture to other jurisdictions – starting in fiscal year 2015 – at levels corresponding roughly to the AADL’s view of the existing language. In terms of the DDA’s TIF capture – which was about $3.76 million in the recently ended FY 2013 – around $0.9 million in additional revenue is at stake, an amount that would increase as downtown development increases.

Based on Chronicle calculations, the AADL’s portion of the nearly $1 million in additional TIF that would potentially be returned would be in the ballpark of $55,000-$60,000 annually. The AADL levies the smallest millage of any of the taxing authorities in the DDA district – at 1.55 mills. The AADL annual budget is about $12.3 million.

The annual return of excess TIF to the AADL (and the other taxing jurisdictions, including the city of Ann Arbor) could increase (or decrease) depending on the amount of future new construction in the DDA district. The DDA captures taxes only on the difference between the taxable value of new construction compared with its baseline value. That’s the “increment” in the term “tax increment finance.”

The August 2011 letter from Parker to DDA executive director Susan Pollay argues that the DDA’s return of $74,666 to the AADL that year – which was meant to cover all the years dating back to 2004 – should have been around $200,000.

On July 1, 2013, a joint committee of councilmembers and DDA board members was tasked with developing recommendations on Chapter 7 changes. The approach the committee is currently taking is to change conceptually the way that Chapter 7 limits the DDA’s TIF capture. It’s a so-called “dual track” for consideration by the council. The other track is the set of revisions that have already received initial approval.

Under the existing ordinance language, the amount of DDA TIF capture is calibrated to projections in the DDA TIF plan, which is a foundational document for the DDA. The different conceptual approach would establish a basis level for the maximum captured taxable value in the DDA district and then set some clearly defined annual increase, keyed to a specific percentage or some variant of a consumer price index (CPI).

For example, the current taxable value on which the DDA captures taxes is roughly $137,000,000. That yielded about $3.76 million in TIF revenue to the DDA in fiscal year 2013, which ended on June 30. If that $137,000,000 were used as a basis for the cap, then a 3% increase applied annually would give the DDA a maximum of $5.063 million in 2023. In any given year, the DDA would receive the lesser of two values: (i) the unconstrained TIF captured on the taxable value; or (ii) the value of the cap.

A working document used by the joint committee at its Sept. 10 meeting showed two basic scenarios, one with a basis of $137,000,000 in taxable value for FY 2013, and a second one starting with a basis of $167,000,000 for the following year, in FY 2014. The second one received more interest from the committee. Depending on the choice of the escalator, it’s not clear if the cap would ever result in a determination that excess TIF should be returned.

Under the Chapter 7 revisions that have already received initial approval from the council, the approach was essentially to clarify the existing language, which relies on the difference between projected increases in the DDA tax base and the actual increase in the tax base. The new approach would remove that restriction and replace it with a fixed cap, which may or may not have a constraining effect on the DDA’s TIF revenue.

In that context, Sumi Kailasapathy (Ward 1) questioned at the council’s Sept. 16 meeting whether the council had the legal right to change the ordinance in that way – given the existing ordinance language, which reads: “Only after approval of the governmental units may these restrictions be removed.” The response from city attorney Stephen Postema at the meeting was to indicate that he’d provide an assessment of the proposed “dual-track” ordinance changes as a whole before the council was asked to vote.

The city attorney office’s view of the requirement of other governmental unit approval seems already apparent in the draft ordinance revisions that have received initial approval from the council. Namely, the council can alter the ordinance in whatever way it chooses, which would include deleting or altering the key sentence requiring approval of other governmental units. The city attorney’s office helped develop that set of revisions, and if given final approval the key sentence would be altered as follows [deleted text struck through and added text in bold italics]:

Only after approval notice to and the opportunity to comment of by the governmental units may these restrictions be removed.

Before the city council takes up the issue again on Oct. 21, the joint committee is scheduled to meet on Oct. 16 at 4 p.m. in the council workroom on the second floor of the Ann Arbor city hall, 301 E. Huron. The meeting is open to the public, and based on the first two committee meetings, an opportunity for public comment will be provided.

Links

-

• [Aug. 11, 2011 letter: AADL to DDA executive director Susan Pollay]
• [Jan. 27, 2012 letter: AADL to mayor John Hieftje]
• [.pdf fixed cap joint committee working document]
• Column: TIF Capture is a Varsity Sport
• Column: Let’s Get TIF Capture Right
• Column: A TIF with A2Y Chamber
• Column: DDA, City Council, No Politics Here

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The city council and the DDA board have a joint committee that is working out details of an alternative to the ordinance amendments that have already been given initial approval by the council.

The initial DDA ordinance revisions that appeared on the council’s Sept. 16, 2013 agenda were awaiting a second and final vote by the council. The amendments to Chapter 7 included various changes to governance, including term limits for board members, as well as clarifications to the existing language on TIF capture. The amendments would have enforced the existing language of the ordinance in a manner that would have impacted the DDA’s TIF revenue in a way roughly matching the DDA’s projected revenues in its 10-year planning document. However, since that 10-year document was last updated, the amount of new construction in the DDA district has resulted in significant increases in the taxable value on which TIF is computed. So about $1 million a year is at stake – which could be distributed to the other jurisdictions whose taxes the DDA captures, instead of being collected by the DDA.

Under the existing ordinance language, the amount of DDA TIF capture is calibrated to projections in the DDA TIF plan, which is a foundational document for the DDA. The different conceptual approach would establish a basis level for the maximum captured taxable value in the DDA district and then set some clearly defined annual increase, keyed to a specific percentage or some variant of a consumer price index (CPI).

For example, the current taxable value on which the DDA captures taxes is roughly $137,000,000. That yielded about $3.76 million in TIF revenue to the DDA in fiscal year 2013, which ended on June 30. If that $137,000,000 were used as a basis for the cap, then a 3% increase applied annually would give the DDA a maximum of $5.063 million in 2023. In any given year, the DDA would receive the lesser of two values: (i) the unconstrained TIF captured on the taxable value; or (ii) the value of the cap.

A working document used by the joint committee at its Sept. 10 meeting showed two basic scenarios, one with a basis of $137,000,000 in taxable value for FY 2013, and a second one starting with a basis of $167,000,000 for the following year, in FY 2014. The second one received more interest from the committee.

The council had postponed a final vote on the changes most recently at its Sept. 3, 2013 meeting. Four months earlier, on May 6, 2013, the council had voted to postpone the final vote until Sept. 3, after giving the changes initial approval at its April 1, 2013 meeting.

Two meetings of the joint committee of DDA board members and city councilmembers have taken place about the ordinance changes – one on Aug. 26, 2013 eight weeks after the committee was appointed, and another one on Sept. 10, 2013.

At the Sept. 10 meeting, the group appeared to be ready to recommend that the council table the initially-approved ordinance changes and start from scratch with a new conceptual approach, likely shedding the proposed changes to governance with the fresh start.

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

(Left) Ward 3 city councilmember Stephen Kunselman. (Right) DDA board member Bob Guenzel.

Now two and a half years later, a solid working relationship between the two entities has evolved – unmarred by political machinations, based instead on a clearly understood shared past, and consensus interpretation of relevant statutes and local laws governing tax increment finance capture.

That has led to a joint working session between the entities scheduled for Sept. 9, 2013. The session will offer an opportunity for members of the organizations to exchange appreciation and praise for the positive turn the relationship has taken over the last 30 months.

Heh. That’s a joke, as is the headline – the only accurate part of the preceding two paragraphs is the fact that a Sept. 9 working session is scheduled.

And it’s fair to say that the working session between the two groups would probably not be taking place unless it were contractually obligated – under an agreement ratified in May of 2011. The DDA operates the city’s parking system under that contract. In addition to the convening of a joint working session every fall, the contract stipulates that 17% of the gross parking revenues are to be paid to the city.

Parking money is just one of the two revenue categories over which the city and the DDA have been bickering. The other is the DDA’s tax increment finance capture (TIF), which is regulated by Chapter 7 of the city code. With an initial approval of changes to Chapter 7 already approved by the council on April 1, 2013, a joint DDA-city council committee was tasked on July 1, 2013 with making a recommendation on Chapter 7 changes to the council.

Aug. 26, 2013 meeting of the DDA-council committee, held in the basement of city hall.

Representing the council on the joint committee are Stephen Kunselman (Ward 3), Christopher Taylor (Ward 3), Jane Lumm (Ward 2) and Sally Petersen (Ward 2). Representing the DDA are Sandi Smith, Roger Hewitt, Bob Guenzel and Joan Lowenstein.

Despite being tasked by council on July 1 to begin meeting immediately, the committee did not meet until eight weeks later, on Aug. 26 – after the Aug. 6 city council primaries. Here’s the political calculus: If Kunselman had lost the Ward 3 Democratic primary to Julie Grand, the balance of votes on the council might have shifted to clarifying Chapter 7 in the DDA’s favor.

Grand ran a campaign that was generally supportive of the DDA. But Kunselman has led the council’s effort to clarify Chapter 7 in a way that favors the city as well as the other taxing jurisdictions whose taxes are captured by the DDA. However, Kunselman prevailed – as did Ward 4 challenger Jack Eaton, who campaigned in part on the idea of limiting the DDA’s TIF capture through clarification of Chapter 7.

Because the committee waited until after the Aug. 6 primary to meet, the DDA members had a clearer idea on Aug. 26 about who they’d be dealing with in the near future. The outcome of the Aug. 6 primary meant that Kunselman brought a certain amount of confidence to the committee meeting on Aug. 26. At one point he stated: “… I don’t really have a lot of trust out in my neighborhoods about what the DDA does downtown, ok? And that’s how I have been able to galvanize my base, so to speak, to stay here and to keep this effort alive, so that we can get this ordinance changed … Some of that money, yes, should be returned to the taxing authorities.”

Now the only question mark on the committee is the independent Lumm, who faces a challenge from Democrat Kirk Westphal in the November election. Lumm has made it clear she supports a Chapter 7 revision that respects the interests of the other taxing jurisdictions. But Lumm’s re-election is not a foregone conclusion.

That’s why the opening gambit from the DDA’s side at the Aug. 26 meeting was to delay further, even though the council is scheduled to take a final vote on the Chapter 7 revisions at its Sept. 16 meeting. A future council that included Westphal, mayor John Hieftje, Chuck Warpehoski (Ward 5), Margie Teall (Ward 4), Christopher Taylor (Ward 3) and Sabra Briere (Ward 1) might have six votes that potentially could support the current approach to TIF calculations. But among those six, I think even Westphal, Warpehoski and Briere are capable of independent and rational thought on the question of TIF capture.

The delaying tactic on Aug. 26 emerges in a fairly obvious way if you read through the meeting transcript. [.pdf of 40-page transcript]. DDA members were more inclined to want to talk about general arguments for the existence of a DDA, professing uncertainty about why they’d even been invited to the table. Kunselman, Lumm and Petersen made it clear they were there to talk about clarifying the TIF calculations, not more general themes. It wasn’t clear whose interests Taylor was upholding, but he aligned himself policy-wise – as well as socio-linguistically – more with other DDA board members than with his city council colleagues.

The Aug. 26 meeting was highlighted by a number of misstatements or incomplete statements of historical fact – some serious enough that I worry about the ability of some of those at the table that day to effectuate good public policy.

Still, I think the meeting offered a glimmer of hope – from a guy whose history with the city of Ann Arbor is approaching an anniversary. On Sept. 15, city administrator Steve Powers will have been on the job exactly two years.

Powers, I think, offers a contrast with the previous city administrator Roger Fraser. On April 16, 2010 Fraser barred me from a meeting of a “working group” of councilmembers and DDA board members. Shielded from public view, the group was sorting out the terms of a new parking agreement. Powers, on the other hand, toward the end of the Aug. 26, 2013 committee meeting, had this to say: “If the committee is done commenting, you should provide for public comment, as it’s a public meeting.”

This column includes a brief outline of some factual points worth remembering – because they were misstated or incompletely stated at the Aug. 26 meeting. But first, a point about words. 

Word Usage: Who’s the Attorney?

Even if you haven’t studied it in school, you probably have an awareness of how vocabulary choices can establish credentials, or let other people know that you are one of their kind.

For example, if I say by way of introduction to an urban hipster on a fixed-gear bicycle, “Is that a 44/16 you’re pushing?” that can be translated as follows:

Hey, I would like to make small talk about bicycles, and I know that 44/16 is a gear ratio, so tell me the answer to my question, before I size you up as just a poser who rides a fixie for the hip and groovy look, but doesn’t even know the first thing about gear combinations.

So early on during the Aug. 26 committee meeting, Ward 3 councilmember Christopher Taylor held forth as follows:

Taylor: … I think the ordinance as currently constituted is not clear to the novice 1-L looking at it, and [I] wouldn’t mind an ordinance that was.

What the 1-L?! If you remember the movie “The Paper Chase,” or if you can deduce it from your knowledge of Taylor’s background as an attorney, you might have a shot at understanding the reference – to a “first-year law student.” It seems to be a naming pattern unique to law schools. For example, first-year medical students are not 1-Ms. First-year journalism students are not 1-Js. In any case, Taylor’s reference was not universally and immediately understood by all the other non-lawyers in the room.

I think Taylor is bright enough to know that “1-L” is parlance peculiar to a specific social class. So why use a term that he could reasonably expect would not immediately be accessible to everyone in the room? One reason could be that Taylor was not the only lawyer at the table: Joan Lowenstein and Bob Guenzel – members of the DDA board – are also attorneys. So Taylor’s reference to 1-L could be translated as:

Hello, Joan and Bob, I see you lawyers over there, so let us note that we are the lawyers here –  we are us and they are them – and once again, lest anyone forget: We are the lawyers.

Earlier in the meeting, Lowenstein had tried to put Kunselman in his place with respect to his legal understanding of the contractual nature of the parking agreement between the city and the DDA:

Kunselman: … we can get rid of the parking agreement and take it back.
Taylor: Yes, it’s an agreement but …
Kunselman: … yet we can take it back. [laugh]
Taylor: It’s an agreement between two entities …
Lowenstein: … it’s a contract. Anyway, we won’t educate you about contract law, but go ahead.

A pertinent point about that parking contract, not mentioned by any of the three lawyers present, is the opportunity for terminating it, even when there’s been no breach. Everyone present at the committee meeting with knowledge of the contract was eager to state that the contract runs through the end of the DDA’s charter, in 2033. But apparently forgotten, even by the lawyers present, was the clause that allows either the DDA or the city to terminate the contract in year 11, with one year’s notice:

Each of the City and DDA may terminate this Agreement without cause, on June 30, [2022] and on the eleven (11) year anniversary thereafter, provided that written notice of termination is provided no less than three hundred and sixty five (365) days in advance of said termination.

Myth of Transparency

The transcript of the Aug. 26 meeting reflects a sharp exchange between Kunselman and Taylor on the question of whether the negotiations leading up to ratification of the May 2011 parking agreement were open and transparent. Taylor was adamant that the agreement on the parking contract had been reached in an open way and had not been passed in the “dark of the night.” Kunselman contended that the public conversation took place only after the decisions had been made out of public view.

For some grounding in actual fact, it’s worth noting that after a council-DDA “mutually-beneficial” committee was re-established on May 17, 2010, the conversations between the two bodies on the parking agreement moved at least in part into the public realm. I attended most of those meetings.

Before that, however, the conversation between the city council and the DDA was shielded from public view. Here’s a timeline overview. The April 16, 2010 date is worth noting.

• Jan. 20, 2009: City council passes a resolution asking the DDA to begin discussions of renegotiating the parking agreement between the city and the DDA in a mutually beneficial way.
• March 4, 2009: DDA board establishes a “mutually beneficial” committee to begin discussions of the parking agreement between the city and the DDA. On the committee: Roger Hewitt, Gary Boren, Jennifer S. Hall, and Rene Greff. The DDA’s resolution establishing their committee calls on the city council to form its own committee.
• May 20, 2009: During the mid-year DDA retreat, mayor John Hieftje states publicly that city councilmembers object to the membership of Jennifer S. Hall and Rene Greff on the DDA’s “mutually beneficial” committee.
• June 3, 2009: DDA board chair Jennifer S. Hall removes herself from DDA’s “mutually beneficial” committee, replacing herself with Russ Collins.
• June 15, 2009: Mayor John Hieftje nominates councilmembers Margie Teall (Ward 4), Leigh Greden (Ward 3) and Carsten Hohnke (Ward 5) to serve on the city council’s “mutually beneficial” committee, and they’re confirmed at the city council’s July 20 meeting.
• July 1, 2009: DDA board chair Jennifer S. Hall appoints Sandi Smith to replace outgoing DDA board member Rene Greff (whose position on the board is filled with Newcombe Clark) on the DDA’s “mutually beneficial” committee. Smith is also a city councilmember, representing Ward 1.
• August 2009: Leigh Greden is defeated in the Democratic primary by Stephen Kunselman.
• August-December 2009: Sandi Smith, the chair of the DDA’s “mutually beneficial” committee, reports at each monthly DDA board meeting that there is nothing new to report.
• Dec. 5, 2009: Dissolution of the DDA is included in an “everything is on the table” list for discussion at the city council’s budget retreat.
• January-April 2010: Roger Hewitt reports at monthly DDA board meetings that only informal discussions are taking place.
• April 16, 2010: The Ann Arbor Chronicle is barred from attending a meeting of a “working group” of city councilmembers and DDA board members.
• April 21, 2010: At a DDA partnerships committee meeting, Newcombe Clark gets assurance that a 7-day notice would be given before the full board would be asked to consider a $2 million transfer payment to the city.
• April 28, 2010: At a DDA operations committee meeting, a “term sheet” produced by the “working group” of the city council and DDA is unveiled. It’s intended to become the basis for an eventual new parking agreement. A key feature of the “term sheet” is that the DDA will assume responsibility for enforcement of parking meters. That responsibility was not ultimately included in the final agreement.

Myth of the Debt Clause Interpretation

The transcript of the Aug. 26, 2013 meeting reflects a claim that the DDA as an institution took on bonding debt, based on a particular interpretation of the Chapter 7 “debt override” clause. That interpretation is that as long as the DDA has debt obligations, it does not owe a return of any excess to the other taxing jurisdictions.

Hewitt: So I just want to be clear that you want to remove that ["debt-override"] clause completely?
Kunselman: Yes, which has already been done in the first reading.
Hewitt: But understanding that we have engaged in a huge amount of indebtedness based on that.

The last bonds for which the DDA accepted the debt service obligations were approved by the city council in February 2009. Later in the meeting, Hewitt returned to the implicit point – that historically, the debt clause had always been given the interpretation the DDA is currently giving it. That interpretation is that if the DDA had debt, then no excess TIF revenue needed to be returned to the other taxing jurisdictions:

Hewitt: Just to move things forward, I think, one of the big issues is that debt clause. The DDA and previous councils have operated under the assumption that the debt clause meant that there would be no refund because there was debt. That’s certainly how the DDA has viewed that. And the discussions with previous councils, that’s clearly how previous councils have viewed that. Now if you want to change, if you want to clarify that so that it does not apply, then I would like to hear from council that that is what you would like to do, because that would be a first step towards clarifying the ordinance.

And Taylor lent his support to the idea that the debt clause had consciously been given a specific interpretation over the years [emphasis added]:

Taylor: … Yes there is a debt override, and yes, there is a confusing way of creating a refund mechanism. The DDA has made pledges with respect to debt such that the refund mechanism has not frequently been triggered.

As a matter of historical fact, however, to the extent that the DDA or the city council has ever expressed a position on the “debt clause,” that implicit position has been that the clause does not excuse the DDA from returning excess TIF capture to the other taxing jurisdictions. In more detail, the DDA’s narrative in the spring of 2011 – when the Chapter 7 issue arose – was that the DDA had been unaware of the implications of Chapter 7 on its TIF revenue. However, once alerted to Chapter 7 by the city treasurer at that time, the DDA took 18 days to study the question before concluding that the return of excess TIF was owed to other taxing authorities – dating back to previous years, not just 2011.

Only when challenged on the methodology of its calculations, which made a difference on the order of $1 million per year, did the DDA reverse its position – by citing the “debt clause” of Chapter 7. The clause is most naturally read as a requirement that debt obligations be satisfied before non-debt obligations – like administrative staff salaries. The DDA’s preferred interpretation – that the clause lifts a stated restriction on TIF revenue already expressed in the ordinance – just isn’t plausible.

The fact that the DDA did not cite the debt clause in the spring of 2011 – when it made repayments of excess TIF covering that year and prior years – indicates that the DDA did not then, or in years before that, think the debt clause had an available interpretation under which the excess TIF return obligation could be excused.

The timeline, which undercuts the implications of statements made by Hewitt and Taylor at the Aug. 26 committee meeting, is as follows:

• 2011-April-28: City of Ann Arbor chief financial officer Tom Crawford steps in as interim city administrator in the wake of Roger Fraser’s departure.
• 2011-April-29: City financial staff notice the implications for TIF capture that are written into the city’s 1982 ordinance, which established the DDA. The timing of the discovery was reported by mayor John Hieftje at the DDA board’s May 2 meeting. In summary strokes, the ordinance provides that if the rate of growth in taxable value is more than what was anticipated in the TIF plan, then the DDA would capture only half of the increment on that additional value.
• 2011-May-02 (noon): The Ann Arbor DDA board was expected to ratify its side of the contract with the city of Ann Arbor under which it would continue management of the city’s parking system. Instead, it was announced that the board would be tabling the vote on the parking contract pending a closer review of the excess TIF capture issue.
• 2011-May-02 (7 p.m.): Ann Arbor city council strikes the city-DDA parking contract approval from its agenda.
• 2011-May-16: Ann Arbor city council begins its second meeting in May, at which it must approve the FY 2012 budget. The council does not vote on the budget, but recesses the meeting until May 23.
• 2011-May-20: At a special meeting, the Ann Arbor DDA board approves a parking contract with the city of Ann Arbor that provides 17% of gross parking revenue to the city of Ann Arbor. The approved contract includes a provision that the city of Ann Arbor will backstop the DDA’s financial position if the DDA’s fund balance falls below $1 million.
• 2011-May-20: At the same meeting, the Ann Arbor DDA board votes to affirm the excess TIF calculations raised at the May 2 meeting. The DDA calculates that a total of $1,185,132 should be returned to taxing authorities that levy property taxes in the downtown district. The city of Ann Arbor’s share of that is $711,767, with the remaining money owed to the Ann Arbor District Library, Washtenaw County and Washtenaw Community College. The method of calculation is “year-to-year” not cumulative, and is based on the “optimistic” projections in the DDA’s TIF plan.
• 2011-May-23: City council convenes the continuation of its May 16 meeting, but immediately recesses, likely in order to prevent any discussion of a proposal from Stephen Kunselman (Ward 3) to return responsibility for the public parking system from the DDA to the city of Ann Arbor’s public services area.
• 2011-May-25: “Mutually beneficial” committees from the city council and the DDA board meet and finalize language on fund balance underwriting and required consultation with the city council on rate changes in the proposed parking agreement.
• 2011-May-31: Ann Arbor city council votes to waive the $711,767 in excess TIF capture that the DDA calculated it owed to the city of Ann Arbor.
• 2011-May-31: At the same meeting, the Ann Arbor city council ratifies the city-DDA parking contract, which provides 17% of gross parking revenue to the city of Ann Arbor. The approved contract includes a provision that the city will backstop the DDA’s financial position if the DDA’s combined fund balance falls below $1 million.
• 2011-July-27: At a special meeting, the DDA convenes in closed session and emerges to approve a resolution that reverses its previous position on excess TIF capture. Now the DDA contends that the local ordinance doesn’t actually place a limit on its TIF capture.
• 2011-August-15: Ann Arbor District Library board holds a closed session as part of its regular meeting to review the written legal opinion of its legal counsel with respect to the excess TIF capture. AADL board director Josie Parker indicates that the AADL will ask its legal counsel, Hooper Hathaway, to prepare a response to the DDA’s new position on the interpretation of the ordinance.
• 2011-November-02: Ann Arbor DDA holds a closed session to review the written opinion of its legal counsel on the issue of excess TIF capture.
• 2011-December-07: Ann Arbor DDA holds a closed session to review the written opinion of its legal counsel on the issue of excess TIF capture.
• 2012-Mar-19: Ann Arbor District Library director Josie Parker tells The Chronicle that AADL is not pressing the matter of the excess TIF, but is open to a conversation with the DDA.
• 2012-Mar-19: Stephen Kunselman (Ward 3) announces he’ll be bringing forward a resolution to address the issue of excess TIF capture. Kunselman has not consulted with AADL on the issue.
• 2012-Mar-21: During a budget update at the Washtenaw County board of commissioners meeting, the $348,000 received by Washtenaw County from the DDA in TIF reimbursement is presented as one of several factors contributing to the better-than-expected financial condition for the county.

Myth of the Opt Out: Other Taxing Jurisdictions

The DDA captures some of the taxes of other jurisdictions  – the city of Ann Arbor, Washtenaw County, Washtenaw Community College and the Ann Arbor District Library. The current state enabling legislation for DDAs includes an opt-out provision for other taxing jurisdictions. So there’s a widespread misunderstanding that back in the early 1980s when the Ann Arbor DDA was established, other jurisdictions had an opportunity to opt out.

However, as The Chronicle has previously reported, that provision in the state statute was added after the Ann Arbor DDA was established. And when the Ann Arbor DDA was renewed in 2003, none of the opt-out conditions were triggered. So there has never been an opportunity for other taxing jurisdictions to opt out.

The Aug. 26 committee meeting revealed a lack of command of these historical facts by Taylor, when he ventured that the other taxing jurisdictions had “signed up for it” – that is, not chosen to opt out of the Ann Arbor DDA’s tax capture. [emphasis added]:

Kunselman: I don’t feel good just because I can take someone else’s money, and keep it.
Taylor: I guess: They signed up for it.
Kunselman: Well, the library didn’t. They would like some of their money back.
Taylor: And they haven’t come to us to say that they ..
Kunselman: … they wrote us a letter. They wrote [mayor John] Hieftje a letter.
Taylor: In 2000-what?
Kunselman: What, two years ago? [It was January 2012 when the letter was written.]

Coda

I’ve been told by one public official that it’s not their job to give a correct recitation of history – because that’s The Chronicle’s job. If you’d like to watch the city council and the DDA board make a small bit of history tonight, you can watch live proceedings on Channel 16, streamed online by Community Television Network.

The council-DDA work session will immediately follow a special meeting the council is convening at 7 p.m. to hold a closed session under the Michigan Open Meetings Act – to discuss labor negotiation strategy.

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

Ann Arbor DDA TIF revenue projections. The vertical line indicates the year when the clarified calculations would be implemented. The red line is the amount of TIF revenue assumed by the DDA in its FY 2014 and FY 2015 budgets, and in its 10-year planning document. The blue line is the estimated TIF revenue under the proposed clarified ordinance calculations. The yellow line is the estimated TIF revenue that the DDA would receive if the DDA continued to interpret the city’s ordinance in its own way. (Numbers from the city of Ann Arbor and DDA. Chart by The Chronicle.)

A joint council-DDA committee was appointed on July 1, 2013 with a charge to begin meeting immediately to work out a recommendation on possible legislation that would clarify the ordinance. However, that committee did not convene until eight weeks later, on Aug. 26. The committee met on just that one occasion before the Sept. 3 council meeting. The postponement until Sept. 3 had come at the council’s May 6, 2013 meeting.

The council had given initial approval of an ordinance change at its April 1, 2013 meeting. The change would clarify the existing language in the ordinance – which outlines how the DDA is supposed to return excess TIF revenue to other taxing jurisdictions – to the extent that the revenue exceeds projections in the DDA’s TIF plan.

Until two years ago, the existing limitation expressed in the ordinance had never been applied. But in May 2011, the city treasurer called the issue to the DDA’s attention, characterizing it as a roughly $2 million issue, dating back to 2003. However, when the DDA retroactively calculated its revenue, as well as rebates to other taxing jurisdictions, it applied a methodology chosen to minimize the amount of “rebate” owed to other taxing jurisdictions, reducing the amount to roughly $1.1 million.

When challenged on its method of calculation, the DDA subsequently changed its position, claiming that the money it had already paid back to other taxing jurisdictions was a mistake. The DDA’s new position was to claim an interpretation of a clause in Chapter 7 as providing an override to limits on TIF revenue – if the DDA has debt obligations, which it does. So in 2012 and 2013, the DDA did not return any of its TIF capture to other taxing authorities. In addition to the city, those taxing authorities are the Ann Arbor District Library, Washtenaw County, and Washtenaw Community College.

The proposal as approved at first reading by the council on April 1, 2013 would essentially enforce the language that is already in the ordinance, but disallow the DDA’s interpretation of the “debt override” clause. Compared to the DDA’s own 10-year planning document, revenue to the DDA under the ordinance change would be roughly similar. The minimal impact compared to the planning document depends on the enactment of the ordinance to apply beginning with fiscal year 2015. However, the 10-year planning document in question did not include a large amount of new construction in the downtown area, which has already generated higher TIF revenue than estimated in the 10-year plan.

The ordinance revision as approved at first reading also includes term limits for DDA board members, and would make the appointment of the mayor to the board of the DDA contingent on a majority vote of the council. Without majority support, the mayor’s spot on the board would go to the city administrator.

Serving on the joint council-DDA committee for the council are: Stephen Kunselman (Ward 3), Christopher Taylor (Ward 3), Sally Petersen (Ward 2) and Jane Lumm (Ward 2). Representing the DDA are Sandi Smith, Joan Lowenstein, Bob Guenzel, and Roger Hewitt.

The Aug. 26 committee meeting was dominated by political squabbling. The only substantive concept that was batted around briefly at that meeting was the idea of defining some kind of fixed cap on TIF revenue. This approach would replace the existing ordinance language, which calibrates the DDA’s TIF capture with projections in the TIF plan. But the discussion never went as far as to include dollar amounts for the fixed cap.

Deliberations at the Sept. 3 council meeting were relatively scant, consisting primarily of the date to which the item would be postponed.

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

Other board officers elected included John Mouat as vice chair, Keith Orr as secretary, and Roger Hewitt as treasurer.

One of Smith’s first challenges leading the board will be to resolve an outstanding issue over the way the DDA administers Chapter 7 of the city code of Ann Arbor – which regulates the DDA’s tax increment finance (TIF) capture. An effort led by Ann Arbor city councilmember Stephen Kunselman (Ward 3) – which has taken different forms over the last year and a half – culminated earlier this spring in initial approval by the council of a revision to Chapter 7. The council’s action, if given final approval, would prevent the DDA from giving the code an interpretation that doesn’t recognize a cap on TIF revenue expressed in Chapter 7. The amendment to the ordinance would return several hundred thousand dollars a year to the other taxing authorities from which the DDA captures taxes. Those entities include the Ann Arbor District Library, Washtenaw Community College, Washtenaw County and the city of Ann Arbor.

The council has postponed final action on the matter until Sept. 3, 2013. Between now and then, the council’s expectation is that a joint DDA-council committee will meet and make recommendations on the Chapter 7 issue.

At its July 1 meeting, the city council appointed four members to its committee: Christopher Taylor (Ward 3), Stephen Kunselman (Ward 3), Jane Lumm (Ward 2) and Sally Petersen (Ward 2). And two days later, on July 3, outgoing DDA board chair Leah Gunn appointed Bob Guenzel, Roger Hewitt, Joan Lowenstein and Sandi Smith to the DDA’s committee.

Gunn’s current term on the DDA board expires on July 31 this year.

At the board’s July 3 meeting, the board bid farewell to Gunn and Newcombe Clark, whose term is also expiring at the end of July. First appointed in 2009, Clark served one four-year term. He’s making an employment-related move to Chicago.

Gunn served for nearly 22 years on the board starting in 1991. In 2011 she announced she would not to seek re-election in 2012 to a seat on the Washtenaw County board of commissioners. She had first been elected as a county commissioner in 1996. After redistricting of the county board seats, she decided to support fellow Democrat Yousef Rabhi, who was re-elected and now serves as chair of the Washtenaw County board. In her professional life Gunn served as a librarian in the University of Michigan graduate and law libraries.

The second term for Russ Collins is set to expire on July 31, with those of Gunn and Clark. However, Collins was nominated at the city council’s July 1 meeting by mayor John Hieftje for reappointment to the DDA board.

This brief was filed from the DDA offices at 150 S. Fifth Ave., Suite 301 where the DDA board holds its meetings. A more detailed report of the meeting will follow: [link]

The council will be represented by Christopher Taylor (Ward 3), Sally Petersen (Ward 2),  Stephen Kunselman (Ward 3) and Jane Lumm (Ward 2). Lumm’s name was added to the mix during the council’s meeting.

The current source of friction between the DDA and the city concerns the interpretation of Chapter 7 of the city code, which regulates the DDA’s tax increment finance (TIF) capture. The DDA has chosen to interpret the Chapter 7 language in a way that does not recognize the cap on TIF revenues that is set forth in Chapter 7. That led to a proposal by some councilmembers earlier this year to revise the ordinance so that the DDA’s alternate interpretation is clearly ruled out. The council gave the ordinance change initial approval on April 1, 2013. But later, on May 6, 2013, the council chose to postpone the vote until Sept. 3, the council’s first meeting that month.

In the memo accompanying the council’s July 1 resolution, the group – which was described as a “mutually beneficial” committee – is tasked with coming up with a recommendation for Chapter 7 revised language with a deadline of Sept. 2. During the meeting, the name of the committee was changed from “mutually beneficial” to simply a “joint DDA-council committee.”

The phrase “mutually beneficial” in connection with the sorting out of issues between the city of Ann Arbor and the Ann Arbor DDA was first mooted in a Jan. 20, 2009 resolution. The main issue at that time was the contract under which the DDA administers the city’s public parking system. Subsequently, committees for both organizations were appointed, but they did not achieve any results. The following year, new “mutually beneficial” committees were appointed and those committees met over the course of several months, culminating in a new parking agreement ratified in May 2011. The council formally disbanded its “mutually beneficial” committee at the end of 2011.

Responding to an emailed query from The Chronicle, current DDA board chair Leah Gunn indicated she would wait until the council passed its resolution before making public the names of the DDA board counterparts.

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