Ann Arbor DDA: Tiffs and TIF

Ann Arbor's downtown, from the DDA website

Those who are not meetings junkies (as I am) may not be aware that the minutes do not capture an important facet of these meetings: the interaction between board members.  It is a form of theater for those who care to watch.  Good boards develop a group identity and work together to achieve goals.  But there are stresses and strains as some members strive to convince others of a particular point of view and others use spare statements to communicate important messages about positions and their implications.  At the Ann Arbor DDA (Downtown Development Authority) board retreat for January 5, 2011, it was a pleasure  watching the DDA (which I characterize as a very good board) work through a meaningful board retreat at which they set real goals and made real effort to communicate with one another.  They are also fortunate in having excellent staff support. Their financial officer, Joe Morehouse, prepared a set of spreadsheets to help them walk through a 10-year plan.  Susan Pollay, their executive director, has mastered the light touch in helping the board arrive at conclusions.

The main fireworks at the retreat were what I am calling a “tiff” between Newcombe Clark and Ann Arbor’s Mayor, John Hieftje.  It provided, frankly, good entertainment as they displayed (politely but with strong expression) some real differences of opinion as to the purpose and direction of the DDA.   Clark persistently attempted to establish the primacy of the DDA as an independent organization, while Hieftje stated simply that he regards the DDA as an arm of the City of Ann Arbor, not as a separate entity.

This is a significant question (and one on which I would side with Clark, although not in many of his other positions).   As has been admirably summarized by the Ann Arbor Chronicle,  the DDA has two basic revenue sources and fund accounting.  One is the parking fund, which until recently has been entirely separate from the other TIF (tax increment financing) fund.  The parking fund has paid for parking structures and parking administration, while the TIF fund has been used for the original mission of the DDA as defined by state law, namely the revitalization and development of the downtown.  TIF expenditures have fixed sidewalks and alleys, made grants to various organizations (like GetDownTown and AATA for certain transportation initiatives and Avalon for housing), and more recently grants for energy saving measures to downtown businesses.

But the City of Ann Arbor in recent years has been demanding payments from the DDA, ostensibly as rents for the parking structures.  This has resulted in, among other things, parking fee increases.  (For another post, the whole question of whether increases in parking fees just for revenue violates the Bolt Decision.)  The payments have been $2 million per year for several years, and this has depleted the reserves in the parking fund.  This occasioned the formation of a “Mutually Beneficial Committee” (a good recent account of DDA Finances by the Chronicle summarizes some of their discussions).  The committee, which consists of DDA members and councilmembers, has been negotiating for months trying to arrive at a workable compromise.  Today’s retreat had DDA board members facing up to the loss of ability to make TIF expenditures because of the continuous drain on finances by the City.  At one point, with continual complaints and comments by Clark about this situation, Hieftje shot “do you think those projects are more important than police and firefighters?”.

One issue was the cash balance that the DDA should keep.  That’s the amount in the checking account.  There are accounting balances in both parking and TIF funds, but they are essentially commingled in an account from which checks are written.  As the parking fund has dwindled, the TIF fund’s contribution to the checking account becomes more important.  The projections the group were looking at set a checking account balance (distinguished from a fund balance, which is more of an accounting creature) of $2.5 million at any time.  But under questioning, Joe Morehouse (who has to write those checks) granted that he would be more comfortable with a $3.5 million floor.  He said that at times with the construction of the 5th Avenue underground parking structure, some single checks written to the contractor are in the amount of $2.5 million.  So the board reset the spreadsheet (projected on a screen in a fully interactive mode) at $3.5 million.  This decreased the amount available to TIF expenditures even more.

The 10-year plan being discussed had calculated payments to the City on a percentage of parking revenues.  Clark tried to propose that the city’s payments should be tied at least in part to a percentage of the TIF revenues.  This occasioned a stern and final-sounding rebuff from the budget presenter, Roger Hewitt.  Clark was apparently not sensitive to the political and legal implications.

Here’s the problem: as explained in the Chronicle articles, the TIF revenues are collected from several jurisdictions, including the City of Ann Arbor, Washtenaw Community College, Washtenaw County, and the Ann Arbor District Library.  But those revenues are not to be distributed to one of the contributing entities.  The executive director of the AADL, Josie Parker, reported to her board that she was monitoring the situation with the DDA and was urged to make sure that tax funds that could have supported the AADL were not shifted to the City for its general fund.  (See this article from the Chronicle and followups.)  There was a casual question at the DDA retreat about what had been heard from the AADL and Pollay’s answer was that no formal inquiry had been made.

But the DDA and the City are already skating on extremely thin ice.  The blockbuster news from my perspective today was that the payments on the bonds to finance the 5th Avenue underground parking structure will be made for the next 5 fiscal years from TIF funds. That’s a total of $8,481,047 transferred from the TIF fund into the parking system.  Over that same period of time,  approximately $12.5 million (the number moves around depending on current negotiations and formulas but is about $2.5 million per year) will be moved from the parking fund into the City general fund.

Roger Hewitt tried to explain why this was not a problem.  He said that the TIF funds are routinely used to pay for construction, and this is just another example of that.  But the fact is that all parking structures were previously paid for by the parking fund, which was funded through parking fees.  The other TIF construction payments have been for street and pedestrian improvements.

It appears that the thin membrane between TIF revenues and parking revenues has been pierced and the City of Ann Arbor is now slated to receive regular payments from a parking system supported by TIF revenues from the County, WCC, and the AADL as well as the City.  The other units of government should take a hard look at this.

Explore posts in the same categories: civic finance

7 Comments on “Ann Arbor DDA: Tiffs and TIF”

  1. John Floyd Says:

    Vivienne,

    In Ann Arbor’s audited financial statements, the DDA is included on the city’s books. In the notes, the auditors state to the effect that the DDA is under the control of the city. The Mayor is simply stating the legal status of the DDA. There may be people (e.g. Mr. Clark) who wish (or believe) that the DDA were (is) independent of city government, but the DDA was created by the city, its members are appointed by the mayor, its TIF revenues are statutory (not optional for syphoned governments), and the DDA can be dissolved by the city tomorrow with no input from the syphon-ees. Note also that the DDA legally is unable to issue debt; the city issues all the debt used for DDA projects. There may be a “gentleman’s agreement” between the city and the government units whose tax dollars are syphoned off by the DDA about what DDA fund are spent on, but it’s not obvious that they are able to challenge DDA spending as a matter of right. The DDA was created without the permission of (e.g.) the Library Board, takes Library funding without permission from the Library Board, the mayor, not the Library, makes DDA appointments, and council can dissolve the DDA without permission from the Library Board.

    If there were no TIF, if all the syphoned-off governments had to actually appropriate funds to the DDA annually, there would be much more transparency of DDA activities, and the syphon-ees would have actual control over how – and whether – their revenues were used.

    The real dirt in financial statements is all in the notes. That’s the best place to start when reading financials.

  2. John Floyd Says:

    BTW, are we to understand that no one believes that revenues from the underground lot will be sufficient to meet its debt service payments + operating costs? That IS big news! Thanks for sitting through this, Vivienne.

  3. varmentrout Says:

    Thanks, John, but actually the other units of government do have a say when a DDA is formed. Ours was formed in 1982 and the contributing jurisdictions all had an opportunity to object. The County was notified in 2003 when the charter was renewed for 30 years and I looked into it at that time. Because the proposed charter extension was for the original boundaries of the 1982 charter, the other governmental entities had no opportunity to object.

    Yes, the mayor has the power of appointment to the DDA board but that does not make it an arm of the city. It is an “authority” and has capacity for independent action that is not reviewed by the city council. Where the two intersect is the parking utility (which the DDA took on as an assignment from the city) and the use of city-owned lots (from the parking utility). The wish of the DDA to develop those lots has been a source of ongoing tension, and the demands from the city for parking revenue in recent years has caused that utility much stress.

    Mr. Clark’s vision of the DDA as a virtual independent government and venture capitalist property developer is not one I share. But I do understand his frustration at inhibition of the DDA’s ability to improve downtown infrastructure. He particularly stressed improvements (pedestrian and otherwise) to Huron Street as a neglected priority.

  4. karen sidney Says:

    The bond proceeds are used to pay for the underground structure, pedestrian improvements, Fifth and Division improvements, and future development costs (for the building on top of the parking structure). The plan was always to have the TIF pay for some of these items and the parking fund to pay for others. In August 2008, the DDA prepared a schedule showing the allocation of the total project costs between the TIF and the Parking Fund.

    The total project costs almost $60 million. In addition to this projec, the DDA agreed to pay $500,000 per year toward the city’s bond payment on the new municipal center and is committed to build a $9 million parking structure for the Village Green project at First and Washington.

    DDA finances are stretched. If some the big new projects like Ashley Terrace or 411 Lofts get lower assessments, the DDA may not have enough TIF revenue to pay for all the things in its 10 year plan. All the bonds are city bonds so if the DDA can’t make the bond payments, the city has to come up with the money or default on the bonds.

  5. varmentrout Says:

    Yes, according to the way it was broken out for Wednesday’s meeting, TIF was picking up 5th & Division, Prk. Structure Pedestrian Imp., and Library Lot Future Development (that one is about $300 K a year). What is new is that as of FY 2010/2011 TIF is also now picking up Library Lot Underground. Until then, the Parking Fund was paying it (which was only one year, FY 2009/2010).

    The DDA is also delaying maintenance of cosmetic items and reduced payment to the Parking Maintenance fund for five years.


  6. [...] writes in her blog entry: The blockbuster news from my perspective today was that the payments on the bonds to finance the [...]


  7. [...] writes in her blog entry: The blockbuster news from my perspective today was that the payments on the bonds to finance the [...]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Follow

Get every new post delivered to your Inbox.

Join 36 other followers

%d bloggers like this: