City ordinance changes designed to place new limits on the Ann Arbor Downtown Development Authority passed by a 7-3 vote of the City Council at first reading Monday night.
During a two-hour discussion leading up to the vote, Mayor John Hieftje accused Stephen Kunselman, the primary sponsor of the changes, of launching a politically motivated attack on the DDA that could actually hurt the bottom line of both the city and the DDA.
"I'm not sure why we started down this road other than for political reasons," Hieftje said, calling the proposed ordinance changes "ill-considered" and suggesting they could deal at least a $231,000 blow to the city's general fund, which pays for police and fire protection.
John Hieftje
Ryan J. Stanton | AnnArbor.com file photo
That includes $559,000 going back to the city, $196,000 to Washtenaw County, $124,000 to Washtenaw Community College and $52,000 to the Ann Arbor District Library.
Broken down further, the roughly half-million dollars returned to the city's coffers would include $277,000 to the general fund, $72,000 to streets, $53,000 to parks, $69,000 to the Ann Arbor Transportation Authority, $83,000 to solid waste, and $5,000 toward city debt.
But if the city decides to take nearly $1 million away from the DDA, Hieftje said he wouldn't be surprised if the DDA cuts off grants it provides to the city, which would leave the general fund facing a negative situation when all the numbers are tallied.
"I'm concerned this happens exactly when the DDA is trying to rebuild their fund balance, after a considerable expenditure to pay for the new underground parking structure," he said.
The only two council members to join Hieftje in opposing the proposal were Margie Teall, D-4th Ward, and Chuck Warpehoski, D-5th Ward.
Christopher Taylor, D-3rd Ward, was absent.
Marcia Higgins, D-4th Ward, indicated she was voting yes at first reading in order to have more dialogue, but she could vote differently at second reading.
City ordinance changes require two readings.
"I'm not going to sit here and bash the DDA," Kunselman said. "These ordinance amendments are particular to bringing revenue to the city and to the other taxing jurisdictions who need that money just as much as anybody does. To say the DDA knows how to spend public dollars better than Washtenaw County, better than the community college, better than the library, I think is a false argument."
At the start of the meeting, Kunselman noted he put forward a substitute version of the ordinance changes he initially proposed recently. Sumi Kailasapathy, D-1st Ward, is a co-sponsor.
The new version no longer bans the mayor and other elected officials from serving on the DDA's governing board — it just places new restrictions on them.
The ordinance changes would make it so the mayor's appointment to the DDA board is subject to an annual vote of the City Council. If not the mayor, the city administrator would be appointed.
It also would be more difficult for other public officials to get appointed if they're from any of the taxing units that have a portion of their tax revenues captured by the DDA. Except by mutual written agreement, no public officials from any of the taxing units could be appointed.
Additionally, no members of the DDA board could serve more than two terms, or eight years. Warpehoski objected, calling term limits "mandatory inexperience laws."
Stephen Kunselman
Ryan J. Stanton | AnnArbor.com
The DDA's budget shows TIF revenues at $4 million this coming year and $3.8 million in 2014-15, but city officials believe it actually could get as high as $4.8 million. Kunselman argues the DDA doesn't need an extra $1 million in TIF and that's what he's fighting.
Because the DDA hasn't budgeted for the large increases city officials expect from new developments, Kunselman said the refunds wouldn't impact the DDA's budget to any great extent.
Relative to the DDA's budgeted numbers, the changes would reduce the TIF projections for next year by $363,000, and by $74,000 in 2014-15, according to the city's finance staff.
But the reality is that the DDA would be losing out on $931,000 in real cash in the next year, and giving $559,000 of that to the city, Hieftje said.
He fears the DDA could turn around and take back a roughly $508,000 annual grant it gives the city to help pay for the police-courts addition to city hall. Hieftje stressed multiple times Monday night that's a discretionary grant the DDA can rescind at any time if it chooses.
And he said that's not a situation that works out well for the city's general fund, which would have to pick up the $508,000 in annual costs, while getting only $277,000 back from the TIF refund. Doing the math, that's a roughly $231,000 annual loss of revenue for the city's general fund.
DDA Director Susan Pollay stepped to the podium Monday night to report there are a number of capital projects the DDA also might have to put off if it lost revenue.
She said the streetlights on South Main Street — poles and all — have reached the end of their useful life and must be replaced at an estimated cost of $650,000.
"We have hoped that we could begin to pledge some of our dollars to the public services department to see that project done this year," Pollay said. "That unfortunately would have to be tabled."
She also said the city and DDA share an obligation to complete curb ramp replacements downtown and the DDA's ability to help out would be impaired.
Hieftje said the DDA also has set aside $300,000 in its budget to possibly pay for downtown police and that money could go away, too.
"I'm thinking mostly about the bottom line here," he said. "I see some real dangers here for the general fund."
According to a city records, the bulk of the DDA's increased TIF capture is coming from three downtown high-rise projects: 1) Landmark ($358,000 in new tax revenue), 2) Zaragon West ($179,000 in new tax revenue), and 3) The Varsity ($96,000 in new tax revenue).
"In terms of them not having enough money, I find that hard to believe," Kunselman said. "Because just in FY '10, FY '11, their TIF captures were much lower than what's being proposed with this ordinance amendment. In FY '10, they had $3.5 million. In FY '11, they had $3.4 million"
Kunselman said he found it "a little disconcerting" that there's a threat the DDA might take its $508,000 annual grant away from the city.
The DDA is expected to provide a $479,000 grant to AATA for go!passes in the next year, as well $91,000 to pay for enhanced transit service on the No. 5 Packard and No. 4 Washtenaw routes, plus NightRide service after buses stop running late at night. Pollay acknowledged those specific items are unlikely to be affected in the next year since the money is pledged already.
After spending down its housing fund, the DDA has no money budgeted for affordable housing over the next two years, but Pollay said the DDA has been hoping to find more money for that.
"We are just finishing a period of time where a significant amount of construction has taken place and our fund balances are approaching their minimum," Pollay said.
The DDA has budgeted an excess of expenses over revenues in 2013-14 of $1.35 million, which is expected to reduce its TIF fund balance to $840,324.
It also has budgeted an excess of expenses over revenues in 2014-15 of $107,116, which is expected to reduce its TIF fund balance to $733,209.
It was argued the ordinance changes would hurt the DDA's ability to help the city realize redevelopment of city-owned properties along William Street, including the Y Lot.
There have been talks of installing two new elevators in the Fourth and William parking garage, along with a buildout of the first floor for retail or business incubator space, streetscape improvements, and installation of an enlarged sanitary sewer main under the street. City staff members believe the proposed ordinance amendments could stop those projects for the foreseeable future.
Kunselman said he believes the changes he's proposing will be good for the DDA in the long run. He said it's all about restoring public trust and confidence in the DDA.
"Mayor, I've never asked for the dissolution of the DDA, and I'm certainly not about to now," he assured Hieftje at one point.
Council Member Jane Lumm also said she doesn't want to abolish the DDA.
"Having witnessed the impressive results achieved by the DDA over the years after their takeover of the parking system I've been and remain a strong believer in the benefits of an independent, autonomous DDA advocating for our downtown," she said.
But she said she doesn't believe the city has that now.
"Rather, over the last decade or so, the DDA has evolved from an independent, autonomous body to an extension of City Council, and I don't believe it was or is in the city's best interest," she said.
"I strongly support the governance aspects of this proposal — term limits and some guidelines regarding appointments of public officials to the DDA board," she said.
"I also support the elements of this proposal that define the TIF capture and how much the DDA retains and how much is refunded to original taxing authorities."
Kailasapathy and Kunselman originally wanted to restrict the DDA so it no longer could spend TIF dollars outside the boundaries of the downtown. Lumm was able to get the ordinance language amended Monday night to say some projects in near-downtown neighborhoods, such as affordable housing, still could be funded by TIF dollars if they meet DDA goals.
Council Member Sally Hart Petersen, D-2nd Ward, said she sees a lot of good in what's being proposed — politics aside.
"I think it's going to actually strengthen the DDA in the long-term, and I'd like to be a part of seeing that happen," she said.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's email newsletters.