Local in Ann Arbor

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.

This entry was posted on January 5, 2011 at 11:57 pm and is filed under 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.