Archive for the ‘civic finance’ category

Taxes and the Local Government Quandary

August 15, 2017

Got vision? Our City Councilmembers do.  But that takes money.  Can we talk taxes?

Why do people run for office in local government? Various reasons, including personal (political) ambition, an enjoyment of politics as a practice (it has its obsessive qualities and you meet people), sometimes useful connections that might help you in your day job.  But I believe that a common characteristic in budding politicians is that they want to DO SOMETHING.  The aspirational impulse may go many directions.  With me it was land use. (So, immediately, all the BOC of my day was able to deal with was homelessness.)  We have local politicians who have emphasized economic development, transit, and development for population density.  Lately, the attention has turned to economic equity and affordable (i.e., subsidized) housing, and now there is a strong interest rising in solar power as a method of attacking climate change.

The Michigan Difference

It is frustrating, from the viewpoint of a Michigan municipal official, to read about advances in other states.  Here a transit program, there a measure to provide affordable housing, often paid for by a special sales tax, hotel tax, or even ticket surcharge (think UM football games) levied by a city or a county.  Not here. There are only two ways a local government in Michigan can tax its residents and businesses.  One is a tax on real property (real estate) and “personal property” which despite the confusing name is really business property.  However, that tax is slowly being eliminated.

The other option (available only to cities) is a city income tax. According to the Ann Arbor News,  the City Council is considering that again.  If the Council decides to go ahead with this oft-considered option, they will have to put a charter amendment on the ballot.  If the tax is enacted, it will mean that City residents will pay a 1% tax on income (this is rents and retail proceeds as well as wages) and non-residents will pay 0.5%.  In return, property owners will not be obliged to pay the general operating millage (for FY2018, that is 6.0343 mills).  Whether one comes off ahead on this personally depends on personal circumstances. (My best understanding is that retirement income is now taxable, so seniors are not as advantaged as in the past.)  The advantage to the City, and perhaps to many taxpayers, is that we are able to tap the incomes of UM employees and others who live elsewhere and work or do business in Ann Arbor.

Because of limitations in the Michigan constitution, it is very difficult for local government to raise property taxes.  We reviewed that in this post from 2011, which also walks you through details of when and how assessments for property tax are done.  Because of the Headlee Amendment and some other constitutional restrictions, governments are limited as to the total millage they can impose and must go to a vote of the people (a ballot question) to raise a new millage. Tax expenditures become (by design) a zero-sum game.  So local governments are always starved for revenue, especially if they are ambitious.

Invitation to a fundraiser that was posted to Facebook in July 2017

In the face of this frustration, some of our County Commissioners and City Councilmembers have gotten creative.  As we described in Hair on Fire in Ann Arbor, the BOC has established a millage ballot proposal that offers to give certain local governments a “rebate”, to be spent as wished.  This has entered into Ann Arbor City Council politics, with the incumbents who sponsored the resolution that assigned these tax goodies to favored uses (pedestrian safety, affordable housing, and climate change) running for office as the “Sustainable Ann Arbor”, “Progressive” slate on the strength of that resolution.  This device is obviously a response to frustration over the inability to use local tax dollars as they would like.  But in my opinion, both the BOC and these Councilmembers are not just misusing the ballot initiative system, but are being insensitive to the way ordinary taxpayers view local taxes and how they are used.  To be successful, they will have to persuade a majority of Washtenaw County voters that paying an additional 1.0 mill tax is to their benefit.

Taxes are Taxing

Ann Arbor homeowners are very conscious of our local tax system in July. This is the month the big property tax bill is due. To many of us, this is the make-or-break moment. Writing that check by the end of the month (and Ann Arbor has a very big stick to make sure that you do) is a big stress point.  Of course, no one loves taxes, but this is your HOUSE.  And every year, the total goes up.

Most of the property taxes we pay are for local government.  Across the County, the actual rate and amount paid varies widely, especially because of overlapping school districts, library districts, transit authority district, and other authorities. The greatest difference is in the millage that each municipality imposes on its own behalf.  That is the operating millage together with any special millages that voters have approved.  These can be seen by referring to the Apportionment Report from the County Equalization Department. (All figures cited in this post are from County Equalization.) Washtenaw County is really the essential level of government in Michigan, because many programs based on Michigan and even Federal law are delegated to the County to enact (these are called mandated services).  Taxpayers in all of our local units pay the same County millage (currently 6.2432).

Property taxes collected in Washtenaw County as shown in the Apportionment Report (2016). The smaller pie chart is County taxes and is detail of the pink wedge. Note that schools are the largest tax target. AAATA and DDAs are in the “local government” wedge.

Questions About Equity

There are several questions that occur to the taxpayer. One is, “what am I getting for this tax payment“?  That depends. The general expectation for local taxes is that the tax is collected by government so that it can carry out the services we need. Washtenaw County has 27 cities, villages, and townships.  Taxpayers in each of these may live in different school districts, library districts, etc.  In some, voters have chosen a high-service, high-tax government. Many townships are run on a bare-bones model.   So service levels differ, and so do local tax rates.  City residents usually go with the high-cost option. When we want special services (parks, local buses, better roads, etc.) we vote in special millages. In some townships, it is very difficult to pass a library millage or an increase in the township general operating millage.  Cities have a solid waste millage and provide trash pickup; most townships leave it up to the occupant to contract for trash removal.  Cities typically have water utilities (sewer, drinking water). Townships mostly leave it up to occupants to have a well and a septic tank. There are exceptions; the more urban townships like Ypsilanti and Pittsfield contract with the Detroit water authority, and portions of Scio Township and Ann Arbor Township have contracts with the City of Ann Arbor.  In general “you get what you pay for” is the rule. But to feel that you are taxed fairly, you want to see that you get the services you have opted for.

Is It Fair?

The wish to be treated fairly is baked into our bones.  (Experiments with monkeys show they resent being treated less well than the next monkey; they’ll refuse to do the trick if the other monkey gets a grape and they only get a cucumber.)  But part of that is your expectation of the “service” that you are buying.  I want my trash picked up and my drinking water to be clean and readily available.  I’m not fond of potholes either. But I also want to know that my community is being administered rationally and compassionately by officials who have the correct expertise.  In the example of the County, I want to know that public health, environmental health, and mental health are all being tended to by people who know what they are doing, and public safety (policing and judicial system) is important to me even if I never get robbed or a ticket.  So those are “services” I will happily purchase.   I’ll vote for school taxes even though I never had children.  But what really irritates me is if I do my part and others don’t. That is where we come down to the question of an even treatment of taxation.

Local Differences in Taxation

Because voters in local municipalities (that includes cities, villages, and townships) all choose different “packages” and also because the economic picture in each locality differs, there are major differences across the county in how much tax revenue is collected and what individual taxpayers have to pay. The fortunes of each government (and the burden on taxpayers) are determined by two different factors: the millage rate and the taxable value (properly called the ad-valorem) available.  In order to keep local assessors from under-assessing the value of property, the County Equalization Department conducts a detailed study each year and publishes a complete snapshot of local government assessment and taxation.  (All figures we cite here are from the Equalization Report or the Apportionment Report.)  The fortunes of each government depend heavily on the ad-valorem (hence the constant attention to “tax base”).

Let’s stop right here and acknowledge that there are different kinds of taxpayers, including owners of agricultural, industrial, and commercial property.  These are very important to a locality’s tax base but our discussion here focuses mostly on residential taxpayers.  For the taxpayer, the assessed value (SEV) of their house is determined each year by the assessor (assumed to be half the market value), and the taxable value (TV) is determined by a complex formula (see Proposal A) that works to hold down TV for long-term property owners.  For most, it is much lower than the SEV.  The tax due is calculated in this way:

Some localities have such high-value property that they can afford to keep millage rates relatively low and still provide quality services.  Others, with low real estate values, strain to cover all the bases with high millage rates.  This creates a good deal of inequity on a social level across the county.

Tax profiles for three different municipalities. Local millages (including operating and special millages) are shown. Tax calculated on total homestead millage is for house of market value $200,000, assuming TV is exactly half that.

In this example, the owner of a new house of $200,000 market value (TV of $100,000) would pay a drastically different tax bill.  Because it has such a low tax base, the City of Ypsilanti is taxing its residents at the very maximum that its charter allows.  Because most real estate in Ypsilanti is often at a lower valuation, many may not pay that.  However, this tax rate will obviously depress real estate value.

Back to the fairness question: presumably since each of us has chosen to live in a particular community (a free will theory of taxation), the tax assessed there is “fair”. But what about when the tax is being collected for services used by a different locality?  As we explained in our post Regionalism Reconsidered, Michigan has a strong home-rule tradition and culture.  When we pay County taxes, we are paying for a regional benefit.  We must accept that services delivered to our entire region (county) are on our own behalf.  But what few of us expect is that the County will collect taxes specifically to donate to a different municipality.

In the case of the proposed “mental health and public safety” millage, that was a decision made on the floor during debate on the ballot language. In the final language, a change was made so that the “rebate” to municipalities with their own police forces would be made proportionately on the basis of population, not on taxable value.

shall the limitations on the total amount of taxes which may be levied against taxable property within Washtenaw County, Michigan, as provided for by Section 6 of Article IX of the Michigan Constitution of 1963, be increased up to the amount of $1.00 per thousand dollars of taxable valuation (1.0 mills) for a period of eight years, beginning with the December 1, 2018 levy and extending through the 2025 levy, which shall raise in the first year an estimated $15,433,608.00 to be used as follows: 38% shall be allocated to Washtenaw County’s Community Mental Health Department for mental health crisis, stabilization and prevention, and to meet mental health needs in an appropriate setting, thus reducing the burden on the jail and improving care; 38% shall be allocated to the Washtenaw County Sheriff’s Office to ensure continued operations and increased collaboration with the mental health community; and 24% shall be allocated to jurisdictions in the County which maintain their own police force (currently Ann Arbor, Chelsea, Milan, Saline, Ypsilanti, Pittsfield Township and Northfield Township) in proportion to their respective 2016 population values?

(The change was made in order to benefit the City of Ypsilanti.) This has the effect of redistributing County taxes from one municipality to another.  As is seen in the table, most other cities and townships are essentially donating their own tax base (accepting the logic that this is a repayment for local taxes already collected) to others.  For the complete calculations, refer to this spreadsheet.

“Rebate” in first year based on taxable value vs. population.

But the tax is also a redistribution from all the other municipalities in the County to these units receiving a rebate.  Recall that the more rural townships have chosen to tax themselves at very low rates and then offer very minimal services.  For example, Bridgewater Township has a local millage rate of 0.8233. Freedom Township is 0.9501.  The proposed new County millage of 1.0 mills is higher than they choose to tax themselves for all services.  And part of that tax is going to be redistributed to the urban communities.  This may be why (as reported by the Ann Arbor News) the vote to approve the millage was 5-4, with the “out-county” commissioners voting against it.

There was some discussion that this redistribution in favor of the City of Ypsilanti was for “equity” and that small city does indeed have its problems, as shown with the tax situation. Perhaps we need to consider what “equity” means in distributing taxes among County communities, especially if the purpose is not truly regional in nature.  Should the farmers of Bridgewater Township be paying for pedestrian safety in Ann Arbor?  Should Saline and Chelsea be donating tax receipts to Ypsilanti and Northfield Township?  The rebates are not going to individual taxpayers in those different jurisdictions, but rather to their elected bodies, to spend on whatever priorities they determine. Is that fair?

The Muddle

County voters have shown that they are willing to pay taxes for a truly regional service.  For example, in November 2016, the County roads millage passed by 70.94% and the millage to support indigent veterans passed by 73.18%.  But because of this muddle, it will be hard to make the case that this is truly a regional service for parts of the County. Perhaps the votes in the urbanized parts of the County will be enough to pull it off.  But I wish that the BOC had offered us a clean choice with two pared-down millages, one for mental health services and one for the Sheriff.  It should have been possible to make a good regional case for each of those.  This was a bad time to introduce political aims into the process.

Just to confuse things further, should the Ann Arbor City Council decide to place a ballot issue for a city income tax on the November ballot, Ann Arbor voters will be making two different decisions about their tax futures at the same time.  Wonder how that will work out?

ADDENDUM:  The City Administrator has prepared a memo recommending use of the county millage rebate as to how that extra tax revenue from the County millage might be used.  Here is the report by the Ann Arbor News.

UPDATE: The Ann Arbor News has an article about the city income tax that compares the UM position (not our business) with that of MSU re an East Lansing income tax (oppose it, offering a buyout).  According to the article, there will be a special work session of the City Council on September 11 to discuss the tax.

General note: I believe that it is probably too late to place a ballot item onto the November ballot.  (I am having difficulty in finding the due dates for a charter amendment to be placed on the ballot by the Council.)  That would indicate that the next opportunity for an election would be May 2018.  After that, August or November 2018.  There are potential political consequences for all these choices.

 

Ann Arbor and the Rail Station Gamble

May 28, 2017

The leaders (movers, shakers, and Council majority) of Ann Arbor celebrate the notion of Ann Arbor exceptionalism.  This evidently extends to invulnerability in times of uncertainty.  While the nation and even the world wait to see what will unfold with the Trump presidency, we are ready to bet on future Federal dollars to achieve our dream of a new train station.  On June 5, 2017, City Council will be asked to pay an additional $137,026 toward the new station.  (The last vote was in January, to put money into a contingency fund for this purpose.)  This money is intended to allow the City to collect the last part of a planning grant for a new station. Yet, it appears unlikely that Federal funds will be available for actual construction of a station.  And even more significantly, the contracted work may not be finished in time to be reimbursed under the current grant.

A good summary of the situation was provided by Ryan Stanton, writing for MLive.com (Ann Arbor News).   Stanton has been following this issue closely and earlier submitted a FOIA to see the document that the City sent to the Federal Railway Administration (FRA) for review.  All in all, the City of Ann Arbor has qualified for an award in non-transparency with regard to this project. You may remember the famous picture of the email with all lines redacted.  It has released no public documents about the project since September 2016. (All public documents are available on the City’s Ann Arbor Station page.)

Timeline on Ann Arbor City website for grant acceptance

But the project is running up against a brick wall.  The grant funds expire (gone back to the Treasury) as of September 30, 2017 (end of FY 2017). The schedule published on the City web page indicates that the required public hearing and 30 day review of public comments was to take place in December 2016, with final approval of the EA in January.  But the proposal has languished in some void between the FRA and the consultants.  Now it appears increasingly difficult to fit in all the tasks needed before expiration of the grant funds.  That would leave the City liable for all the costs that have been incurred since this phase of the work began.

As the City Administrator, Howard Lazarus, noted in a letter to Council members,

FRA has expressed some concern over the City’s ability to complete the work within the grant funding period. To that end, FRA has authorized a “tapered match” approach, in which the City can access the federal funds first. Staff believes under this structure, we can advance the majority of the PE effort before the end of July. Council should note that the FRA cannot guarantee that invoices sent to them after June 30th will be processed prior to their mid‐September cut‐off for FY17 funds disbursements.

Lazarus is asking Council to approve an amendment to the consultants’ contract that appears to extend their tasks beyond the original contract. One could speculate that some of this is to answer questions from the FRA in their response to the previous submission.  There is a slight pleading quality to Lazarus’ letter to the FRA. (Note: full-size text may be viewed by clicking on these illustrations.)

From Howard Lazarus to FRA Midwest Regional Manager May 26, 2017

An odd note is that the project is not shown in the attached schedule to be completed until October 2017.  How does that reconcile with a September 30 deadline, much less a June 30 deadline?  Yet presumably the City would not pay the consultants in advance of their work.  (The usual approach is that consultants issue invoices as work is done, and the City sends them to the FRA for reimbursement of the grant amount.)  It appears that the City is proposing to make itself responsible for completion of the work past the grant deadline.  All of this seems to be very creative accounting practice.

What’s  the Problem?

We recently alluded to the history of former Mayor John Hieftje’s vision with reference to the grant that was awarded for the first phase of planning a new train station.  Like most Federal grants from those golden days, this ARRA grant of $2.8 million (from the Obama stimulus of 2009) is for 80% of the cost – in this case, for the Environmental Assessment under NEPA, and some preliminary planning and engineering.  It has been the expectation that a future grant for actual construction would follow that same 80% Federal – 20% local rule.  But even 20% of a multimillion dollar building is a big bite for a small city.  So originally, the promise from Mayor Hieftje was that the City would put in NO GENERAL FUNDS.  Instead, the local match was to be picked up by the University of Michigan in a joint project, the Fuller Road Station. (Here is a post in which that promise was made explicitly). That deal fell apart and UM built a parking structure elsewhere.  Ann Arbor had already expended a fair amount of money on early planning, but that work was not accepted as a local match toward the grant, so the money was essentially wasted and new cash from the General Fund had to be invested in order to stay in the running for the grant.  The City has now spent over $1 million just in matching funds for the grant (most of this went to consultants and planners), though much more has been spent that doesn’t apply directly to that grant now.  And now it could be liable for all the sum left (about $750,000), including the 80% Federal match.

Predicting the Future of a New Station

Much of the uncertainty has been in the Federal budget process itself.  As we explained in some detail earlier, transportation funding is complex.  Part of it is based on the Highway Trust Fund – a dedicated source of revenue.  The rest is dependent on the dispensation of Congress, in money from the General Fund or from new sources of revenue.  Much of that was hanging by a thread until recently because all Federal funds were dependent on passage of a continuing resolution – which happily was passed on April 28 and signed by the President.  Here is a summary of transportation funding under that resolution. Note that some important items, namely TIGER grants and New Starts, that were to be eliminated according to the President, were saved in this extension.

Meanwhile, the President, or more accurately, the White House, presented Congress with an Executive Budget. As has always been true of Presidential budgets, this is more a policy document than an actual description of how money will finally be allocated.  Only Congress gets to appropriate money.  But it is important because it shows President Trump’s priorities and thinking.  And those priorities do not include handing money out to little cities.  Here is a revealing summary of the “Infrastructure Initiative”.  From the summary:

The flexibility to use Federal dollars to pay for essentially local infrastructure projects has created an unhealthy dynamic in which State and local governments delay projects in the hope of receiving Federal funds. Overreliance on Federal grants and other Federal funding can create a strong disincentive for non-Federal revenue generation.

Instead, the White House would move to a model in which private investors would enter into partnership with states and local governments to build or improve projects that have a revenue generation capability.  So – toll roads, transit prices high enough to pay a profit, fees for using anything. The Feds would simply facilitate all this.  The idea is so potent that investment funds along these lines have already attracted Saudi investors.

Under the very best of scenarios, Congress will pass a budget for FY 2018, to begin October 1.  All current funding will expire as of September 30.  In the past few years, Congress has failed to pass a budget at all and instead has relied on a series of continuing resolutions, which generally hold most budgets where they began, with a few small changes.  But let’s assume that they make it this time. (After all, one party controls both houses of Congress and the Presidency.)  What are the chances that discretionary spending on transit will be included in the new budget, given the strong leanings by the White House and the tax-cutting mood of Congress?

A Double Gamble

So it appears that the City of Ann Arbor is placing bets on its cards for two outcomes:

  1. That it can recoup all the grant monies for the current project, against a very tough timeline
  2. That this will somehow result in the future in a new train station.

But it also appears that there is a mood of desperation at the possibility of having the effort collapse.  From Lazarus’ letter to Council:

From Howard Lazarus to Ann Arbor City Council

Rather high-stakes cards, and to my risk-averse eyes not a good bet.  Will Council raise, or fold?

 

 

 

 

Making a Federal Case for Ann Arbor Rail

April 3, 2017

As we related in the last post, Ann Arbor has been dreaming of trains for the last decade. We have paid for multiple studies, and detailed plans and reports have been produced. Our Mayor, Christopher Taylor, has named rail travel as a top priority. In a letter sent to many constituents early in January, he stated “Expanded rail service is vitally important to the future of Ann Arbor”. (Here are some further comments reported by the Ann Arbor News.) Now the City Council has just a couple of months before the next Budget is adopted.  How much of the City’s resources should continue to be devoted to this purpose?  After so many years with rail in the future, is it time to relegate these dreams to the past?

For Love of Trains

First of all, this question is not about whether we love trains.  Of course we love trains.  Most of us of any age or travel experience have happy memories to relate.  (I have a sentimental description of my own experiences in this post from 2011.)  Trains are part of the sensibility installed in us from childhood.  Here is a video of a favorite childhood song about trains.  Wouldn’t you like to climb aboard on this train, or at least join in?

Trains are a great mode of travel.  Sit and read (or work) or just look at the scenery. No worries.  Why wouldn’t we want to be able to travel to Detroit without worrying about freeway traffic and parking?  And as a commute, it can’t be beat, especially if that “last mile” problem can be solved.  (Transit from the station to work.)  If you have visited a city with a light rail system, you know how nice it is to travel around an urban area that way.  Just hop on, ride a few minutes, hop off.

For all these reasons, and for several others, the dream has survived since 2006 and has been enthusiastically adopted by many on our Council, and by many citizens.  The rail projects have all been studied and are ready to be implemented, more or less.  But is this possible?  Most of all, can we afford this vision under the present circumstances?

A Very Expensive Wish List

Because consultants have been hired to do studies of our rail wish list, we have some rather good numbers now for how much these projects will cost.  The costs for the Ann Arbor Train Station have been kept rather obscure through the Environmental Review process, as has much other information. A construction estimate was provided via a FOIA by Dave Askins (thanks to a direct response by Howard Lazarus, the City Administrator).  A couple of feasibility studies have been completed for the Connector. The North-South Commuter Rail (aka WALLY) Feasibility Study has recently concluded; here is the Financial Analysis.  The Ann Arbor-Detroit Commuter Rail was folded into the Regional Transit Authority and cost estimates were included in that plan (RMTP) .

From all of these studies, we can compile a total of the full cost of the rail wish list for Ann Arbor.  Note that these figures are not the amount that the City expects to pay.  The Connector, WALLY, and the Ann Arbor-Detroit Commuter Rail are all expected to be cooperative projects and other governmental entities are expected to contribute. (The Ann Arbor Station is an Ann Arbor project alone.)  But in every case, the expectation has been that the main burden of the cost will be borne by the Federal Government.  Often the statement has been made that 80% of the cost will be Federal, and the 20% local matching amount is partly offset in theory by the State of Michigan (MDOT).

Costs for these projects are of two types: Capital (original construction) and Operating (annual cost of operation and maintenance).  Capital costs are a one-time investment, but operating costs are perennial.

Capital costs for four rail projects

Annual operating costs for three rail projects. It is assumed that Amtrak would continue to operate the train station. These are gross costs; offsets for fares and fees not subtracted.

Making Decisions about the City Budget

Most City expenditures are based on fairly accurate estimates, either for existing contracts or from well-fleshed out plans.  Most budgeted items will be spent as described, with a fair certainty that the deliverable will be produced.  There is never quite enough money for all the things we would like to achieve as a community.

The City Administrator, Howard Lazarus, has been making presentations to the Council in advance of the budget.  Capital improvements are suggested for firehouses, streetlights, sidewalks, dams, and signals.  The slide also showed the following amounts ($millions) for FY 2018 and FY 2019. The last column to the right is “FY 2020+”.  Taken all together, the rail items constitute 43% of all capital improvements.  These are General fund expenditures in the City Budget for the next couple of years.

From the slide of 2018 capital improvement costs. Figures at bottom include more items than shown here.

If Council is going to continue to use Ann Arbor city funds (taxes) to pursue these rail projects, it is making a calculated gamble.  We are continuing to put chips on the table in hopes that there will be a big payoff.  And the expectation has been that the deep pockets at the table belong to the Federal government.  That is no longer true.

The Shifting Sands of Federal Funding

With the Trump presidency, predictions are impossible.  One can, however, hear solid hints of what he is thinking.  There are other players in Federal funding, especially many different factions and interests among members of Congress.  Here are a few high points about Federal transportation funding, which has usually been very contentious.

  • The gold standard is outright grants.  In other words, Federal taxes distributed directly to states and localities for use in transportation projects.  This is what we would like for all our projects.  There has been a move in recent years toward encouraging localities to apply for loans instead. The TIFIA program is an example.
  • Pennies were falling from heaven in 2009, with the Obama stimulus program, better known as the American Recovery and Reinvestment Act (ARRA).  This was especially friendly to transit programs and included the high speed rail program (HSIPR)  program that has paid for our preliminary rail station study.  It was not renewed with the new Republican Congress in 2010. All ARRA grants expire at the end of the current fiscal year (September 2017).
  • The main source for transportation grants has been the Federal gas tax, or Highway Trust Fund.  The tax rate has not increased since 1993.  This fund was originally to pay for the Interstate system.  A mass transit fund was added to it in 1982.  The Transportation Act, which is the law that governs how the money is spent, has expired a number of times and been renewed and rewritten.   This is always a big food fight in Congress.  The way the money is allocated changes in each revision.  There are always legislators who would like to get rid of the mass transit and alternative transportation provisions so more money can be spent on roads and bridges.
  • Through some miracle (and our Senator Debbie Stabenow deserves a lot of credit), the Transportation Act actually got revised and renewed in the last Congress.  The name always changes.  The last bill was MAP-21; this one is  the FAST act.
  • An important feature of the Transportation Bill is that items funded by the Highway Trust Fund are not dependent on the Federal Budget because they are not part of the General Fund.  This has kept funding of mass transit programs, for example, very stable.
  • The FAST Act included rail travel for the first time.  BUT it did not attach Highway Trust Fund monies to it.  RAIL IS DEPENDENT ON ALLOCATIONS IN THE FEDERAL BUDGET (the General Fund).
  • Congress has been keeping the Federal Government running by a series of continuing resolutions.  It has not actually passed a budget for a long time.  The current Continuing Resolution expires on April 28, 2017.
  • Meanwhile, President Trump and Congress are trying to conclude negotiations on a variety of bills and spending priorities.  Here is the Budget Blueprint recently published by the White House.

Important Cuts and Immediate Significance

The two most important points affecting grants to local governments for rail in the White House blueprint are the cancellation of TIGER grants and the loss of New Start funding for new projects.  TIGER has been a source of discretionary grants – very competitive (only 1 in 20 grant applications funded) but very essential to localities.  That is the source that Ann Arbor hoped to tap for the new train station.  New Starts have been the method of choice to start a new rail system “fixed guideway program” (which includes Bus Rapid Transit); this would have been the likely source of cash for the Connector or possibly one of the commuter rail systems.   Without these, there is literally no Federal grant program that could realistically pay for our rail programs.

Even if Congress does not follow this blueprint, it must still appropriate funds for any grant program.  With the Continuing Resolution due by April 28 and tax cuts looming on the horizon, this seems unlikely.

The Trillion-Dollar Question

What about the infrastructure program that President Trump has mentioned?  It would not be grants, but rather tax incentives for private investment.  The likely mechanism would be “P3” (Public-Private Partnerships) programs where the locality borrows money from private investors.   A preliminary list of likely projects has been released, but has no force in law.  Many such programs will require a source of revenue, such as fares, tolls, or fees.

ADDENDUM: The Administration’s likely approach is being telegraphed by Elaine Chao, the Transportation Secretary.  In this speech she says,

“Investors say there is ample capital available, waiting to invest in infrastructure projects. So the problem is not money. It’s the delays caused by government permitting processes that hold up projects for years, even decades, making them risky investments. That’s why a critical part of the President’s infrastructure plan will include common-sense regulatory, administrative, organizational and policy changes that will encourage investment and speed project delivery.”

This is a clear call for privatized projects.  What is not clear is what “impediments” are going to be cleared.  Agreement by local governments? Safety regulations? Environmental hazards?  Best not to picture this too fully.

The Gamble

Since it is so unlikely that there will be Federal grants to pay for the wish list of rail projects, what should the City Council do?  One alternative would be to sit tight and wait for developments.  But will they spend substantial funds in the next year on these projects, with all the other priorities? To do so seems to be a triumph of hope over prudence, indeed.  Perhaps there is a good lottery running somewhere.

 

 

Ann Arbor’s Fading Dream of Trains and Rail Systems

February 12, 2017

The Mayor of Ann Arbor, John Hieftje, held a convocation of area leaders on June 15, 2006, in which he outlined a broad vision of transportation for Ann Arbor and the region.   As he explained (press release), the vision would bring environmental benefits (lessen air pollution), enhance quality of life, and increase the region’s economic competitiveness.  The vision was named the Mayor’s Model for Mobility.  Its elements were an East-West Transit (commuter rail) to link communities in Southeast Michigan, as well as a North-South Rail.  There would also be a local connector system to link up the two railroads, and a streetcar system that would encompass the many sprawling campuses of the University of Michigan.  The plan was illustrated by a sketch that is positively jolly.

Mayor's_Model_for_Mobility_20060008The vision was bold and in those heady days before the economic meltdown that affected local property values (and thus local property tax revenues), it seemed not unlikely.  Hieftje at that time was at the height of his influence, with a City Council that was solidly behind him.   He had the power of appointment to the board of the Ann Arbor Transportation Authority, the ear of our Congressman, John Dingell, and a strong relationship with the administration of the University of Michigan.

Since then, a lot has happened.  The economic collapse affected not only Ann Arbor, but Michigan and the nation.  There have been significant shifts in Congress and in attitudes toward transportation funding.  Prospects rose (with Obama’s election) and sank (Tea Party).  AATA (our local transit authority) put major effort into a countywide transit plan, which failed.  Then a smaller local urban transit millage succeeded.  A Regional Transit Authority centered on the Detroit Metro area was created.  Its millage failed and that effort is now in limbo.  (Some, but not all, of this history, is recorded in our posts on The Transportation Page.)

The remarkable thing is that, over a decade later and despite many discouragements, the current Mayor (Christopher Taylor) appears to be bent on fulfilling the original vision.  And its elements, especially those relating to rail travel, remain at the top of Ann Arbor’s priorities, as reflected by the Capital Improvements Plan.  But these are extremely expensive and rely on the assumption that there will be Federal grants to pay the major portions.

Looking At It With Clear Eyes

In light of recent changes, both in current transportation funding, and in the change of emphasis in the Presidency (as we indicated in the last post, the ground has shifted), how realistic is this vision now?  And how does this affect the rest of our local government initiatives, since we are presumably setting aside considerable funds in order to accomplish these decade-old objectives?

The timelines and priorities for some of the rail projects, such as the North-South rail (WALLY) and the East-West commuter rail, are more distant.  But the rail station (the Ann Arbor Station) is priorities # 1,2 and 3.  Also a very high priority is the Connector, a light rail system that will connect the UM campuses.  While the commuter rail projects and the Connector have other possible participants, the rail station is our very own.

First Comes the Train Station

The train station was part of a grant awarded to the State of Michigan from President Obama’s stimulus program.  That program, ARRA (American Resource and Recovery Act) was launched in 2009 and the availability of the funds is ending in May 2017.  Actually, the grant awarded is only to pay for the initial assessment of the site and preparation of a preliminary design and engineering review.

Mayor Christopher Taylor has consistently placed the Rail Station at the top of his list in importance for Ann Arbor.  In a recent article in the Ann Arbor News, he argued for its importance as he anticipates an increase in rail travel, including a new commuter rail service.  As described in a second article , Taylor was able to persuade a majority of his City Council to provide funds for work that cannot yet be done.

Council voted at the meeting of January 17, 2017 to allocate another $151,600 (matching funds for the ARRA grant).  As the background for the resolution states, availability of those funds is ending in May 2017.   This is awkward because the City is still awaiting a ruling from the Federal Railroad Administration as to the preferred site for a new station.  (The selection process has been arduous and there have been many delays.  More detail is available on the City website.  The two possibilities being considered are Fuller Park and the current site on Depot Street.) (Additional information and viewpoints are on the All Aboard on Depot Street website.)  Basically, the Council has now authorized funds for a contract which cannot be fulfilled at this moment but must be invoiced by May 2017.  (This is about 3 months from now, and critical information is not available.)

Money and Timelines

As always with government, much comes down to money.  How much will it cost? Where will it come from? When will it be spent?  The answers to some of these questions are in that Capital Improvement Plan mentioned earlier.  Staff takes all the information given to them and assembles timelines and cost estimates.  They also indicate some of the expected sources of the money.  But here are some important points to keep in mind.

The General Fund is the checkbook for the City’s cash flow.  It is the amount of money from property tax each year.  Most other funds in the budget are restricted to specific uses, such as roads from the road millage. If Council spends money on special projects, it is from the General Fund.  The General Fund revenues for 2016 were $83,617,342.  That’s $83.6 Million for the whole city.

Another important point is to recall that we are currently in Fiscal Year 2017.  It ends on June 30, at which point we will be in FY 2018.  Council is currently working on the budget for that FY, which will be passed in May 2017.  (Again, three months from now.)

Now look at this information from the CIP.  Note that some activities are already in process (2017).  But we have some big-ticket expectations, in a relatively short time.

Amounts from the FY 2016-2021 Capital Investment Plan. WALLY omitted.

Amounts from the FY 2016-2021 Capital Investment Plan.   WALLY omitted.

According to this, we’ll be building a train station in the next fiscal year (begins in July 2017)   And we’ll put more than 10% of the General Fund into this one project.

I don’t believe it either.  And there are other details.  The remainder of that $44.5 million is supposed to come from a Federal grant.  (Money has not been allocated.)  And I’m guessing that part of our General Fund amount is hoped to come from the State of Michigan.  AAATA is being tasked with a grant for some of the Connector expenses, but they have a hard time making all their current expenses.  The University of Michigan, on the other hand, has committed to major expenditures for the Connector, but this is not shown here.  Still, the mere scale of these commitments is breathtaking.

In the next post, more details about transportation funding as it might affect this project.  But meanwhile, all this is hard to take in.  Will we really rearrange our city priorities to accommodate this heavy a drain?  Are the uncertainties being considered?  How will it affect the budget (that has to take in all other City considerations) that is under preparation?  How much will this vision affect our reality?

UPDATE: At the February 13, 2017 Council Working Session, the City Administrator, Howard Lazarus, presented a slide showing new projections for the CIP.  It indicates $500,000 for the Ann Arbor Station for FY 2018 and $13 Million for FY 2019, with the cryptic notation, “New revenue or financing”.  For the Connector, it shows $600,000 for FY 2019, with nothing for FY 2018.  For FY 2020 and beyond, we now see $10 Million for the City alone, with the funding noted as “tbd”.

Now What? Local Government in the Age of Trump II

February 5, 2017

Reading the tea leaves for predictions about local government funding.

In the last post, we predicted that there will be some serious changes in the relationship between local government and the Federal Government.  This is because of the election of Donald Trump as President.   As we stated, this is because the President qualifies as an extreme-impact, highly improbable phenomenon, a “black swan”.  This is not just because of a change in party from a Democratic to a Republican presidency.  Trump has already shown himself to be highly unpredictable and that he doesn’t follow any conventional playbook, even a Republican script.  “You can’t do that” is not a meaningful statement.  In fact, with the sudden ruling on immigration (for a recent example), he has shown that he will do things because he can.  So assumptions that anything will go on as it has are very poorly based.

Early Indicators

There are a few hints as to what may happen.  One is that he is apparently intent on fulfilling many of his campaign promises, even those thought to be too outlandish to be real during the campaign.  Often these were no more than tweets, but I hope that planners everywhere have already assembled a book of those for study.

Another hint is his appointments to Cabinet and other high-placed positions.  It appears that his main thrust is to appoint people who have a contrary view on the policies that are the responsibility of their new position.  So for example, Betsy DeVos – hates public schools, appointed to Department of Education. The Environmental Protection Agency, Scott Pruitt, whose important relationship with that agency has been to sue it.  As these individuals take their places, it will be necessary to examine their records and pronouncements in order to guess what may happen.  But it is obvious that the intent is not to go on as we have.

Then there is the Republican Congress.  They have a rather uneasy relationship with their new President, but they are exultant at the opportunity to apply their views on spending, taxation, and regulation that have been held in stasis for eight years.  So where there are budgetary blueprints already on the table, they should be taken as a serious indication of where things may go.

According to an article in The Hill, Congressional staffers are putting together a “skinny budget” that is also being scrutinized by the President’s staff.  This budget is based on the Blueprint for Reform assembled by the conservative Heritage Foundation. The Hill has assembled a number of proposed agency cuts (which might affect local governments directly) and listed them in the article.  We hope to examine these closely in a future post.

Another set of guidelines to watch is a set of transportation priorities highlighted in an article from McClatchy DC.  These are slightly different from a set of priorities compiled by the National Governors’ Association.  All these are relevant to Trump’s promise to invest heavily in big infrastructure projects.  But they also have a potential effect on other transportation initiatives.

Willingness to Act

Fifth Ward Councilmember Chuck Warpehoski

Fifth Ward Councilmember Chuck Warpehoski

All of this should also be taken in the context of Trump’s evident willingness to wield a funding sword (or perhaps chainsaw is the better tool) to punish local governments for straying from the policy path that he prescribes.  The recent executive order regarding sanctuary cities, as detailed in this article from MLive, indicates that he will not hesitate to use this tool without a concern for collateral damage.  This caused at least one councilmember, Chuck Warpehoski, to express reservations at taking a step (the casual use of the term sanctuary city) that would endanger programs in the City, including affordable housing.

Be Prepared

Given all these still indefinite indicators, our local representatives should be looking ahead to see which programs may be vulnerable.  Our administrative staff and those whom we have elected to represent us need to be on their toes.  This certainly doesn’t seem to be the time to engage in bold adventures.

UPDATE: Some explicit worries about changes to support for affordable housing from Shelterforce.

SECOND UPDATE: Some shoes are beginning to drop.  This article from the Washington Post details some of the likely cuts to HUD housing programs.  Consequences for local programs are immense.

 

Now What? Local Government in the Age of Trump

February 2, 2017

Ann Arbor and Washtenaw County local government will have to embrace a new paradigm in which Federal funding for long-accepted programs is no longer assured.  We hope they start now to think about this.

The Black Swan phenomenon

the_black_swan_taleb_coverThe book,  “The Black Swan: The Impact of the Highly Improbable”, by Nassim Nicholas Taleb, was released in April 2007.  Taleb used the metaphor of the Black Swan (you never expect to see one, and have trouble believing it when you do), to describe an event with three attributes:

First, it is an outlier, as it lays outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.

Second, it carries an extreme impact.

Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

The book ranges through a variety of literary references, mathematical formulations (including chaos theory), parables, historical references, psychoanalytic tropes, and expanded metaphors to make its point.  It is quirky and sometimes difficult to read. (Sample heading: “Zoogles are not all Boogles.”)  But it makes a strong case that just when we believe that the course of the universe is a smooth sail, it will turn around and bite us in the (tail).  Perhaps the best metaphor is the story of the turkey, who lives happily in a grassy field with plenty of corn – until Thanksgiving comes.

Since Taleb often has made his living in finance (as a hedge fund manager, for example), his lessons are evidently meant to apply to the world of finance.  “A storm is coming.” (Not his quote.)  The book appeared in April 2007. In August 2007 there was a small panic as a hedge fund refused withdrawals.  In October 2007, the DOW was at a high of 14,000+ points.  By March 2009, it was at 6,600.  Meanwhile, the US and the world had endured an economic collapse.  Now the causes are well known, or at least well explained.  But at the time, everything was looking fine.   Black swans were hiding, but they were there.

We Shall Persevere

After the economic collapse, many normalization mechanisms were called into effect.  Even now, eight years later, things aren’t great for a lot of people.  There was a lot of damage.  But one thing that did work is that most governmental functions continued on along a fairly predictable course.  President Obama’s stimulus program was short-lived, but even through years of budget crises and sequestration alarms, cuts have been mostly at an incremental level.  This has meant that state and local governments and their planners and bureaucrats could continue to issue budgets expecting that various Federal subsidies and programs would be there, long enough in most cases to forecast several years into the future.  You need that to make plans.  Contracts have to be signed, projects initiated.  Costs of operation need to be anticipated.  And many lives depend on the continued smooth operation of these mechanisms.

Our expectations of our political system have been pinned on this smoothness of operation.  Yes, some programs get cancelled or cut, but on the whole things continue on and most things work out.  How could it be otherwise?  With the likely ascension of Hillary Clinton to the Presidency, this seemed even more obvious.  She ran as the maintainer of the status quo, with improvements.  All the polls said she would win, and President Obama was talking about his legacy.

The Trump Effect

Now we have our new Black Swan.  Who could have predicted that the American public would elect this man to the greatest station in the land?  (Clinton based her whole campaign on the bet that we wouldn’t.)  But here he is.

And then – there were the hopes that wise heads would counsel our new leader and changes would be at least well rationalized.   But he is showing some signs that he will be a wild card indeed.  He doesn’t accept known fact and makes his own up when it suits him.  He is prone to personal offense at criticism.  And he has been appointing mostly people who seem most interested in bringing down the established order.  Clearly he will not hesitate to take an egg-beater to government as we know it.   So he is likely to have an “extreme impact”.

Andy LaBarre, Chair of the BOC, 2017

Andy LaBarre, Chair of the BOC, 2017

In a recent interview on MLive, Washtenaw County Board of Commissioners Chair Andy LaBarre put it succinctly: “Who the hell knows what Trump’s going to do on any number of things.”

You said it, Andy.  We are now facing an unprecedented level of uncertainty.  But we know that change is coming. Ann Arbor, Washtenaw County, and indeed the entire State of Michigan will have many adjustments to make in both programs and expectations as the full array of changes in Federal policy take place over the coming months.  I expect that the final resolution will be that we will have to rely more on local resources for essentials, and this in turn will mean a new evaluation of our own programs and priorities.

Timelines

Change will probably come very rapidly in some cases.  But for many programs, it will probably fall along budget schedules. One point to know is that different governments have different budget schedules.  The Fiscal Year that each level uses is a crucial piece of information in understanding when all the pieces will fall into place.  The next Fiscal Year will be FY 2018.

fy-datesAssuming that the Federal Government really does pass a budget on time this year, both the State of Michigan and Washtenaw County will have at least some ability to anticipate needed changes to their budget.  It may be trickier for the City of Ann Arbor.  The City Council actually approves that budget in May.

We do have a few tealeaves to read.  There are already some proposals for deep budget cuts being floated.  In the next post, I hope to highlight a few of those and their likely effects on local programs.

Same Song, Different Verse: Ann Arbor and the City Income Tax

December 15, 2016

Now that the Ann Arbor City Council is beginning budget discussions, they are being given information by the staff about what we know is Ann Arbor’s “structural deficit”: the proportion of the property in the city occupied by the University of Michigan, thus not in the tax base; the limitations that the Michigan Constitution imposes on cities for taxation; and the cost of maintaining and advancing city infrastructure and services, greater than the revenue available.  In the December 12, 2016 budget retreat, as reported by the Ann Arbor News, the idea of a city income tax was once more brought up for discussion.  I hope that this time, the City Council shows some courage and gives this worthwhile idea a chance.  Important note: no matter what the Council does, it will take a vote of the people to change Ann Arbor’s method of taxation.  And it is actually a choice between income tax and property tax as means to operate our city, not just a new tax.

I’m a bit weary.  This is now a thrice-told tale. I was on the committee that met for over a year beginning in 1995 and ultimately recommended a study of a city income tax.  The study, by Edward Gramlich of the UM (later of the Federal Reserve Bank) was completed and presented to Council in 1997As noted by the Ann Arbor Chronicle,  there was also a study completed in 2004.  Here is an account of the City Council discussion of a tax ballot issue in 2009, also from the Chronicle.  There is much interesting information there, including a table showing exemption amounts in various other cities.  One way to minimize the impact of an income tax on low-income residents and/or workers is to have a high personal exemption.  Note that the link to the 2009 study by Plante Moran does not work.  The City has redone its webpage and many historical links are no longer available.  Here is the 2009 study.

Here are three posts I wrote in support of a city income tax in 2011.  I was astonished when reading them to see how incredibly wonky they are.  But this is a green-eye-shades, bean-counter kind of topic.  The first tries to lay a basis for putting a proposal on the ballot.

This one lays out a lot of the details of Michigan tax policy and the way the City of Ann Arbor schedules its tax assessments and tax collections.

The final post examines in detail a study that purported to show that income tax was a less dependable means of revenue than property tax for cities.  But as I show, the figures are badly flawed and the argument falls apart.  This might be very old news, except that it has already been cited in the recent Ann Arbor News coverage.

Some things have changed.  All the figures relating to city revenues need to be updated.  The Michigan tax law has been revised.  Governor Snyder’s changes affect some aspects of city income taxes as they affect taxpayers.   If the discussion continues and looks serious, I’ll have to do some more incredibly wonky posts.  But now you have the history.

UPDATE: The Ann Arbor News reports that the city income tax is back on the agenda.   A special work session is scheduled for September 11.