Local in Ann Arbor

A report on the February 23, 2010 Library Lot RFP Advisory Committee meeting.  (No new meeting scheduled at present.) Also speculation on what it means and where we go from here.

At the latest Library Lot RFP advisory committee meeting (February 23), it became more and more evident that city officials are going to take every possible step to bring a conference center proposal before the council.  As we have frequently noted, there has been a “secret plan” to put a conference center on the Library Lot for years.  But somehow it will be necessary to make this decision respectable, or at least not politically damaging.

With the exit of Jayne Miller,  the management of the committee has been transferred directly to the city administrator’s office.  One consequence appears to be a loss of the relative transparency that the committee was displaying.  This is indicated by the fact that most of what was discussed at the February 23 meeting – two letters from proposers – was not placed on the website, despite requests to make them public.  (Correspondence, including questions and responses, was posted earlier.)  We were able to post a letter from Valiant Partners by obtaining a hard copy of the letter, but the letter from Acquest to the committee was evidently more closely held.  These two letters were the major subject of discussion at the February 23 meeting.

Discussion of the letters

The letter from Acquest, judging from the very discreet discussion of it (the committee seems to be perfecting a special language of code words and half sentences), dealt with the awkward question of Acquest’s expectation that the city, and possibly the county, would build a conference center on the old Y lot.  Apparently Acquest is backing off an outright demand that this would happen as a prerequisite of their proposal.  CM Teall commented that she was concerned that they might not succeed without it.  (As outlined in the Valiant letter,  the Ann Arbor hotel market is already saturated and the only hope for a new one would be that a conference center would pull in new business.)  CM Rapundalo (the chair of the RFP committee) concluded that “we have to stick with the parameters …(the context of the Library Lot)… they added (another) component but as far as I’m concerned, it has nothing to do with what we’ve asked for”.  Sam Offen asked who is paying for the independent studies that Acquest is asking for.  John Splitt said that they (Acquest) were suggesting that someone else should pay for them.  (Note that Valiant said in their letter that they had already hired a consultant to do a study.)  CM Rapundalo said that they would need to “clarify” this  – whether it is a requirement going forward (having independent studies) and who would pay for it.

With regard to the Valiant letter, Rapundalo mentioned the offer to reduce the size of the conference center to 25,000 S.F. (to reduce costs).  He noted that he had heard from authoritative sources that the “tipping point” for conference centers was 40,000 S.F and indicated that he was concerned about the possible success with the reduced capacity.  Teall suddenly asked if the hotel couldn’t seek guaranteed advance bookings (presumably to show that it would be viable) but was told by several committee members and staff that this was not practicable.  Roger Fraser, who was present as senior staff to the committee, commented that he had been involved with the Denver convention center and that they didn’t start booking till the project was approved.

With regard to the Valiant letter, Eric Mahler began to ask questions about the implications of the suggestions Valiant had made in their letter for “TIF bonds”, saying that these are hard to justify in this climate.  (Ed. note: it is not clear what Valiant meant by TIF bonds, unless it would be bonds issued by private parties, to be repaid by TIF proceeds.)  Mahler continued to say that TIF would be more risky, but “a lot of people are not crazy about (issuing) city bonds”.

Fraser quickly closed down this line of discussion.  Speaking so softly that he could barely be heard by observers sitting directly behind him,  he said that this (bond discussion) would be a “negotiating point”.  “(We) don’t want to be putting up barriers before we get down the road.”  Offen brought up the point that Valiant had offered to remove the subordination of the city’s interest to a private lender.  Fraser said brusquely, “That’s detail.”  Rapundalo summed up by saying, “it’s good they are willing to talk about that”.  Fraser continued to say that the committee should concentrate on “fundamentals”.

Teall, brightly changing the subject, asked if it weren’t true that the top two floors were residential.  (The implication was that the city would also be adding to the housing stock, always a desirable outcome.)  But several committee members, including Offen and Splitt and backed up by Pollay, said that the likely use of those condominiums would be as rentals made available to the hotel for use by certain guests.  Splitt said this was another way of financing the hotel construction.

The committee moved on to review some questions they had evidently sent to the two conference center proposers.  (Neither these questions nor the answers have appeared on the city website.)  After a discussion so elliptical that it is impossible to summarize, there was a certain amount of complacency expressed by Splitt that two proposals had been presented in response to the RFP that had potential.  Fraser concluded that he was looking forward to the opportunity to ferret out the strengths of the two, and concluded that they were “not out of the park”.  (Ed. note: apparently he meant “out of the ballpark”, since the committee has definitely taken the discussion away from any park concept.)  Teall chimed in that she agreed.

The consultant to be hired by the city

The city previously put out an RFP for a consultant (to be paid for by the DDA) to help them review the proposers’ business viability and the likely success of the project.   The original timeline for this person or firm to begin work has slipped considerably.   While the RFP called for the consultant to attend the January interviews, no one has yet been hired.  Fraser said that they had more or less settled on one candidate (but was not ready to reveal a name) and would try to hire him/them “within the next 10 days”.  He said that this person was based personally in Ann Arbor but did not work here.  They are doing, Fraser said, a “mating dance” in which a work plan has been requested.  He assumed that the advisory committee would eventually meet with the consultant and work from a set of questions that would form the basis of “the report you want”.  Some discussion of the timeline put time for a report at a month from the committee meeting or perhaps sooner.  Offen said that it should address whether there is a market for a hotel.  Fraser agreed that it “needs to convince us that this will be successful”.

Other consultation for the committee

With a report from the consultant some weeks off, the committee began to list other possible sources of information – or really, encouragement.   Some of the suggested guests or information sources were the Convention and Visitors’ Bureau (CVB), SPARK, and Josie Parker, the executive director of the Ann Arbor District Library.  (The UM was also suggested and firmly dismissed.)  It seemed that the committee was looking for affirmation and encouragement as much as information.  Susan Pollay cautioned that the CVB board was composed mostly of hoteliers, who might not support new competition.    Pollay has worked closely with Parker (who, as we have commented before, has been supportive of a conference center on the Library Lot), and suggested that perhaps the committee could get a sense of how the conference center would benefit the AADL in its growth.  Rapundalo hoped that perhaps SPARK (or their CEO, Michael Finney) could explain how a conference center would support economic development.  Fraser agreed that when talking about attractiing business into the downtown, “we need decent places for them to stay proximate to the business location – what we’ve heard is that it is (currently) inadequate”.

Where we go from here

All in all, it sounded very much as though the committee was seeking support and an “echo chamber effect” – people who will tell them that the course they are set on is the right one, and perhaps loan their own authority in making this point.  The description of the negotiations over the consultant’s “work plan” is also suggestive.  Presumably much of the consultant’s own work and calculations will be confidential and not subject to FOIA.  I predict that the report will be favorable to the Valiant proposal and will seek to show that it makes business sense for the city, or that it will at least not recommend against the Valiant plan, but merely set out some pluses and minuses.

Of course, all of this dodging about gives the lie to a central argument about the RFP committee, that it was supposedly appointed to do a full and fair review of all proposals, and to follow a formal process for evaluating them.  The RFP even laid out percentages by which each facet of a proposal was supposed to be weighed.  When CM Sabra Briere presented a resolution back in January (see coverage by the Ann Arbor Chronicle) merely to have all documentation forwarded to council, CM Rapundalo and others shouted “Process!”  over and over again, arguing that the committee should be permitted to do its sober evaluation of all proposals and then present a recommendation to council.  The committee had already dismissed the two open space proposals with two or three minutes’ deliberation (but subsequently picked them up again at the mayor’s urging).  The argument was that due process required respect for the committee deliberations.  But the committee’s January 21 meeting (again, summarized by the Chronicle) did not use a scoring process at all.  Instead,  after a perfunctory discussion, they dismissed the two  open space proposals (one of which offered to write the city a check for $2.5 million) because they weren’t “clear enough” or “didn’t answer the questions well enough”, and also because they might cost money to the city.  As we reported, they also expressed considerable antipathy to the very notion of open space.  Without any more sophisticated device than a simple ranking of preferences, the committee settled on the two conference center proposals, disregarding cautions about risk and contingencies from two staff members.  While they were troubled by ambiguity and potential cost to the city by the open space plans, they are now embracing them with regard to the two conference center plans.  But will they be able to put lipstick on at least one of those two piggy faces well enough to convince the council and public that this is the correct choice?

An inconvenient truth

Most inconveniently, this decision has arrived on our doorstep at a time of virtual fiscal meltdown for the City of Ann Arbor.  The decaying Stadium Bridge, the layoff of police officers, the threat of new income taxes or their alternative, are all current news headlines. Council is weekly canceling popular programs like the Mack School pool, the Senior Center, Project Grow, or the summer band concerts, and human services are in jeopardy.  It seems reasonable to say that the political popularity of spending scarce city tax dollars  on subsidizing yet another expensive project will be nil.  Indeed, a number of city council members and the mayor were quoted recently as saying that they would not support a subsidy for that purpose.  And the RFP was promoted as bringing financial benefit to the city.

Yet it is also true that both of these proposals would mean that the city would assume considerable responsibility for financing a new conference center.  Acquest’s proposal simply called for the city to build a conference center on the old Y lot (but didn’t explain how that would be financed), while Valiant was very forthright in saying that the city would be expected to sell bonds (full-faith-and-credit bonds, where the city’s assets and revenue flow are on the line) to finance it.

Ann Arbor's bond debt in millions of dollars

This comes at a moment when the city’s debt is already skyrocketing. Here are some figures extracted from the CAFR (Comprehensive Annual Financial Report), which is available on the city’s web page for FY 2002 to FY 2009.  (The second and third pages of the attachment are actual pages from FY 2005 and FY 2009 CAFR).  As the attachment shows, bond indebtedness increased fourfold between FY 2005 and FY 2009.  Add in the bonds issued ($49, 420,000) to pay for the Library Lot parking structure, and the increase is six-fold.  (The figure on the graph for 2010 only shows the parking structure bonds; the fiscal year doesn’t end until June.)

This calculation and figure are, of course, oversimplified.  The amounts shown are only for “governmental activities”, not for “business-type activities” (enterprise funds like the water utilities).  Keep in mind that the fiscal year begins in July of the previous year, so FY 2009 ended on June 30, 2009.  Some other events that influenced this trajectory were the sale of bonds for $26 million in FY 2007 (the maintenance facility) and nearly $28 million in FY 2009 (for the city hall).  Also, in 2007 and 2008 the city “defeased”  some bonds by putting part of the general fund into a trust to pay them off.  This took them off the city debt balance.  But regardless of the details, it is clear that the city has taken a major leap into debt over a period of time that the region’s economy was in decline.

So how to sell more indebtedness for a conference center in the face of all this bad news?  It may be partly a way it is framed.  The consultant will doubtless help with this.  Somehow the final package must be presented so that it appears the debt is already paid for through other means (the arguments for bonding the parking structure were an artful example of this).  But accounting devices should not be allowed to hide the liability that this increased debt load is creating for our city. Surely after what we have been through as a country, a state, and a city over the last two years, that should be evident.

Ann Arbor GDP 2005-2008

UPDATE In contemplating Ann Arbor’s increasing debt load, it might be well to look also at the snapshot of the local economy provided by the Center for Michigan.  The graph shows the decline in local GDP over the period 2005-2008.

SECOND UPDATE: The committee’s objective stance in reviewing the proposals is further called into question when its chairman is soliciting support for a particular outcome.  At the February Main Street Area Association meeting, Stephen Rapundalo openly called for members to lobby their council representatives for one of the conference center proposals.

This entry was posted on February 26, 2010 at 7:43 pm and is filed under Business, civic finance. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.