$2 million from DDA could help close Ann Arbor's budget gap
The Ann Arbor Downtown Development Authority's governing board took action Wednesday to set aside $2 million that could help the city balance its budget.
The DDA's governing board voted 7-4 to approve a budget for the upcoming fiscal year that includes a $2 million contingency. Whether the city gets that money hinges on the pending renegotiation of a parking agreement with the DDA.
Roger Hewitt, chairman of the DDA's operations committee, addresses the fact that the DDA's fund balance is shrinking quickly at Wednesday's meeting.
Ryan J. Stanton | AnnArbor.com
If the $2 million comes through, that would close nearly 40 percent of the city's budget gap for 2010-11. The remaining gap could be closed by a flat 4 percent reduction in employee compensation.
About five years ago, the city and the DDA negotiated a contract for the DDA to operate the city's parking system. That contract required the DDA to pay the city $1 million a year over a 10-year period that will end in 2015.
The agreement allowed the city to opt to take a "pre-payment" of an extra $1 million per year at its discretion. The city has been doing that for the last five years and already has depleted the entire $10 million revenue stream from the DDA under the agreement, five years before the contract expires.
The absence of that $2 million in annual parking revenues, which the city has come to rely on, now is included as part of the city's $5.2 million general fund deficit for the fiscal year starting in July. City officials are attempting to renegotiate the parking agreement with the DDA to keep cash flow coming, but acknowledge the DDA is under no obligation.
City Administrator Roger Fraser said the City Council is scheduled to adopt the 2010-11 budget at its second meeting in May, which gives the city time to work out the agreement with the DDA. He said the fact that the DDA's board took the initiative to carve out $2 million in its budget gives the city hope.
"If they've gone that far, my presumption is that that will be worked out," Fraser said. "But until it is, I can't count it, so my budget forecast doesn't change."
Roger Hewitt, chairman of the DDA's operations committee, said discussions remain ongoing between DDA and City Council members on renegotiating the contract. He said the $2 million - which is not a pledge - was included in the budget based on the assumption that a new agreement will be reached.
"The DDA is certainly looking at areas where we would have some additional benefit to a more comprehensive agreement, and at this point I can't go into any details," Hewitt said.
DDA officials acknowledged at Wednesday's meeting their budget will be tight for the next couple of years as the authority all but depletes its cash reserves to pay for two ongoing capital projects.
The DDA's budget for 2010-11, as amended Wednesday, includes $25.8 million in spending and $20.2 million in revenue.
Before reaching that decision, the board voted to revise its budget for the current year based on estimates that show the DDA ending this year $5.3 million in the red.
That's projected to bring the DDA's fund balance down from $14.4 million to $9.1 million. The 2010-11 budget shows the fund balance dropping further from $8.9 million to $3.3 million as the DDA heads another $5.6 million into the red next year.
The overspending is largely due to capital costs related to the underground parking structure project the DDA is undertaking on Fifth Avenue, and related improvements on Fifth and Division. The DDA sold bonds of nearly $50 million for those projects and had to come up with 15 percent of the costs in cash.
"We are now running our fund balances down significantly," Hewitt said, noting that was the DDA's plan all along.
"We will have a period of about three years where we are going to have very low fund balances," Hewitt said. "By low, I mean in the approximately $2 million to $2.5 million range. That is the upcoming fiscal year and the two fiscal years after that."
DDA board member Jennifer Hall raises concerns at Wednesday's meetings about cuts to DDA services.
Ryan J. Stanton | AnnArbor.com
After that, Hewitt said, parking rate increases will have gone into effect, the new parking structure will come online, and DDA revenues should start increasing.
The fact that about $350,000 in cuts to programs were proposed in the DDA's 2010-11 budget was cause for concern for some on Wednesday. Board member Jennifer Hall said it was her understanding funding the underground parking structure project wouldn't jeopardize DDA services.
Hewitt said a recent renegotiation of parking revenue agreements with the city for two downtown parking lots caused a loss of about $350,000. Some of the cuts include reducing the budget for conferences and training, eliminating transfers to the housing fund and eliminating area association grants.
Board member Sandi Smith objected to eliminating funding for the DDA's energy saving grant program, which provides rebates to businesses for energy efficiency improvements. She successfully lobbied to reinstate $100,000 for the program.
Hall fought to reduce the $2 million contingency for the city to $1.65 million, citing the $350,000 in annual revenues the DDA recently agreed to divert to the city. She said that could save DDA programs on the chopping block, but a majority of board members voted against her plan.
The final 7-4 decision on the budget came with dissenting votes from Hall, Smith, Newcombe Clark and John Splitt, DDA chairman.
The budget shows DDA salary costs are slated to rise from $262,310 to $302,030, a 15 percent jump. DDA executive director Susan Pollay said that's solely for the promotion of an intern to a 40-hour-a-week contract job. She said no pay raises are scheduled.
DDA fringe benefit costs are rising from $101,909 to $144,503, a 42 percent hike. That's largely due to increases in funding for retiree pensions and benefits, as well as health insurance costs.
Estimated DDA tax captures total $3.8 million in the upcoming year, which is an increase from $3.54 million.
The DDA revised its parking revenue estimate for the current year on Wednesday, dropping from $16.9 million to $15 million. With a scheduled rate increase in July, the DDA's budget for 2010-11 predicts parking revenues will tick up to $16.17 million.
Hewitt said the latest parking rate increase is so the DDA can pay for the underground parking structure project and related improvements on Fifth and Division.
Ryan J. Stanton covers government for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.
Comments
citizenx
Thu, May 6, 2010 : 8:10 a.m.
I just pray if this money is given to the city, its divided equally amongst all city depts not just Police & Fire. The other city employees have families to feed as well, and there jobs play a vital role in the cities survival.
brad
Mon, Mar 8, 2010 : 5:05 p.m.
The DDA is essential, but it needs close oversight. Before the DDA assumed control over parking, the City underfunded parking structure maintenance which eventually caused expensive repairs. TIF revenue focuses improvements back into the downtown. UM, Downtown, and Neighborhoods are all necessary, but in themselves, not sufficient to produce the revenue necessary to fund the programs which Citizens demand. Without the DDA, the Downtown would suffer a similar deterioration as experienced by the parking system. That said, the DDA operates a semi-autonomous, multi-million dollar budget, and it requires City oversight and Citizen input to steer policy so that the Downtown component of Ann Arbor can continue to thrive.
a2grateful
Fri, Mar 5, 2010 : 5:43 a.m.
The most glaring flaw of a2 City government, whether mayor, council, DDA, etc., is its pre-economic collapse thinking. City government redesign needs to consider a five- to ten-year revenue decline. That is, unless, someone in City government, patents a method of cold fusion, with proceeds deposited into City coffers.
SBean
Fri, Mar 5, 2010 : 12:57 a.m.
"After that, Hewitt said, parking rate increases will have gone into effect, the new parking structure will come online, and DDA revenues should start increasing." The assumption in this statement is that parking demand won't drop over the bond repayment period, which is a questionable one. Raising rates will only contribute to the demand dampening. "The DDA revised its parking revenue estimate for the current year on Wednesday, dropping from $16.9 million to $15 million." Ryan, was this 11% reduction due to anticipated rate increases not being instituted or because total-year demand is no longer expected to meet predicted levels? Also, you reported in another article recently that the city's overtime costs are a big chunk ($2.7 million, IIRC.) Was that a budgeted amount for the coming FY or an actual amount for the current or previous FY?
lester88
Thu, Mar 4, 2010 : 5:11 p.m.
@Ryan Stanton. It appears that you have replaced the AA News as the means of spreading propoganda for this administration. "If the $2 million comes through, that would close nearly 40 percent of the city's budget gap for 2010-11. The remaining gap could be closed by a flat 4 percent reduction in employee compensation." Duh, and a number of other means could be used to close that budget gap. Hopefully the Mayor, Council and Administrator will quit reading blogs and make some decisions. If the city can only afford 2 tree trimmers, then the city should only have 2. Same for police, fire or any other department. You and the City should quit blaming the employees and pay for the ones that can be afforded. I have an idea, lets outsource the HR function to save some bucks. The City hired a consultant to tell them their employess have good benefits. Doesn't the City have a Benefits Mgr? A farily new one that replaced the previous one who wouldnt play ball in the blame the employee game. What's the turnover rate in the HR dept? HIGH. Why? Because they do the Administrations dirty work then end up taking the fall. Check that fact Mr Stanton and report back on your next employee benefit post. Tomorrow? Sunday? Soon I'm sure.
Awakened
Thu, Mar 4, 2010 : 4:44 p.m.
The City should buy a Greek Island and make it into a City park.
Regular Voter
Thu, Mar 4, 2010 : 1:48 p.m.
Ann Arbor should find a sister city in Greece, the financial disaster area of the European Community. Greece doesn't live within its means and so they go to Germany to bail them out. Germans say, nein, and now the Greeks are looking to sell some of their islands, national treasures that can't be replaced but it's the lazy, irresponsible way out. Sound familiar? Ann Arbor should get its Greek sister city to do some off balance sheet budget bucket shell game creative finance trading our city parks for their islands and we could each balance our budgets. Don't laugh, before we discover all the shenanigans perpetrated on us by our city officials we will find stuff just as kooky. "It's just a policy discussion we need to have."
snapshot
Thu, Mar 4, 2010 : 1:31 p.m.
So the DDA was created because Ann Arbor can't trust their elected officials? That's a sad statement. What does that say about the citizens, or should I say sheep. This may explain why there are no ethical standards or guidelines. No ethical review boards. No accountability what-so-ever? Hopefully this budget crisis will be a wake up call for the citizens. There should be people down at city hall yelling and screaming about this city's finances and how they've been handled. It's a travesty.
a2grateful
Thu, Mar 4, 2010 : 12:10 p.m.
The a2 DDA did nothing to make downtown great. The downtown is not great. It is OK, at best. However, no U of M = no downtown a2. No a2 DDA = business as usual downtown. The lack of DDA has nothing to do with the downfall of Flint or Detroit. No jobs = no downtown.
javajolt1
Thu, Mar 4, 2010 : 11:55 a.m.
The DDA used to be a quasi-governmental entity set up to keep the City Councils grubby hands off the money that was to be used to keep downtown vital. And if you don't think a vital downtown in critical have a look at Flint or Detroit. Then, the City found a way to start raiding the DDA's money for "other purposes". Again. The chief issue here is we have a City that refuses to live within its means. Eliminating the DDA and directing all that money into the "General Fund" is a recipe for disaster. We're already close to this and where has it gotten us? The city is exploring a city income tax!! This city council will not rest until it lifts up every rock to find every single dollar to which it is NOT entitled. What is so hard to understand about the simple concept: "STOP SPENDING MONEY (OR PLANNING TO SPEND MONEY) YOU DO NOT HAVE!
snapshot
Thu, Mar 4, 2010 : 11:54 a.m.
I don't understand this fragmentation of government responsibilities and revenue. Why does the DDA even exist? All their functions and revenue sources duplicate what should be a city government funtion. Why this seperation of power? Ann Arbor isn't that big of a city.
Ryan J. Stanton
Thu, Mar 4, 2010 : 11:49 a.m.
Here are a few records showing the DDA's financial projections for the Library Lot underground parking structure project: http://a2docs.org/doc/189/
uawisok
Thu, Mar 4, 2010 : 11:37 a.m.
"Shell Game Indeed"...hope those at City Hall don't think that budget cuts and belt tightening are now averted....cut cost, quit trying to play developers and maintain basic City services!!!
Ryan J. Stanton
Thu, Mar 4, 2010 : 11:22 a.m.
This was DDA executive director Susan Pollay's response when I asked about the status of the pending agreement: "It's just sitting there waiting for the dialogue from the city and the DDA to come together. It's a policy level discussion. I think the DDA and the city need to figure out what they're doing and I don't want to predict."
Regular Voter
Thu, Mar 4, 2010 : 10:48 a.m.
It's a shell game without transparency or process and the Mayor appoints the players and the city manager as well reports to him. In the meantime this boorish incompetent cynically manipulates the taxpayers with house of horror scare tactics on new taxes (imagine the number of retirees on fixed income facing a Headlee rollback) and now here's Ryan, the public's watchdog defending their practices this way: "It sounds like DDA board members and City Council members are having positive discussions about a new comprehensive agreement that will be mutually beneficial to both parties." It's not your job to be co-opted by your sources, although if you got a job as a city flak with its $103,000 average compensation you'd get a heck of an improvement in your current income, health care and retirement package. If you can't beat 'em join 'em. It's a boondoggle and Ann Arbor's okay with it. Hey retiree, if you can't pay your increased taxes you can always move into a room at Delonis. Just be grateful we're not getting all the government we're paying for. BTW DDA, while you're exercising 'selfless stewardship with the public trust' council is making it illegal to phone in the rest of our money to your ingeniously unworkable solar powered parking kiosks that the mayor is in his twisted logic sabotaging. The Gong Show went off the air years ago, but many of you will be voted off the island come fall.
Karen Sidney
Thu, Mar 4, 2010 : 10:23 a.m.
The DDA did not sell the bonds for the underground structure. The city sold the bonds and city taxpayers are on the hook to repay them if the DDA revenue projections turn out to be too optimistic. 28% of the projected FY11 DDA tax capture is from 4 projects: Liberty Lofts, Ashley Terrace, 411 Lofts and Zaragon Place. If those projects run into financial trouble and are sold at a loss, the tax capture revenue will decline. Almost half of the taxes from new downtown construction captured by the DDA are committed to making payments on the police courts bonds and the underground structure bonds. If tax capture revenues decline, the DDA budget will get even tighter
Top Cat
Thu, Mar 4, 2010 : 9:47 a.m.
Moose beat me to it, but the first thing that came to mind was the term "shell game".
johnnya2
Thu, Mar 4, 2010 : 9:31 a.m.
If you look at it at that way Craig isn't that the basis for all financial transactions? It is going from one agency (business, person or government) to another agency (business, person or government). The main difference is, the DDA gets money from people who use the downtown area in the form of parking, and taxes on those businesses that benefit from them. The goal of the DDA is to increase business activity in the downtown area. The goal of the city is for the entire city. Think of it this way. The DDA is a subset of the city, which is a subset of the county, which is a subset of the state, which is a subset of the entire country. Many times the city is trying to get more money from the county, the state or the federal government to help with budget projects and balancing. It is a negotiation.
Moose
Thu, Mar 4, 2010 : 9:15 a.m.
It's the shell game economics of "the buckets". There is no new money, it appears that it's the same money, or phantom money, that gets shifted between the empty buckets.
Craig Lounsbury
Thu, Mar 4, 2010 : 8:54 a.m.
Ryan, perhaps my use of the word "bickering" is misplaced or premature, but it isn't exactly my point. My point, or (rhetorical) question is whether we are looking at one financially strapped quasi government agency perhaps bailing out another financially strapped government agency with money that ultimately comes from tax payers.
Ryan J. Stanton
Thu, Mar 4, 2010 : 8:37 a.m.
@Craig Lounsbury I didn't get the sense that there has been any bickering. It sounds like DDA board members and City Council members are having positive discussions about a new comprehensive agreement that will be mutually beneficial to both parties.
Craig Lounsbury
Thu, Mar 4, 2010 : 8:22 a.m.
I'm just an average knucklehead here but I peeked at the DDA budget and they seem to be operating in the red for 2009-10 to the tune of 4.8 million dollars. They seem to get their money from a "DDA Tax" and operating parking lots and structures and parking meters that, correct me if I'm wrong, we the people of Ann Arbor collectively own. If we the people in fact do own the DDA's source of income is this a case of one quasi government agency bickering over our money with another government agency? Somebody straighten me out here.
a2grateful
Thu, Mar 4, 2010 : 8:11 a.m.
The need for a2 DDA is over. Abolish them. It's just another folly budget silo at this point in time. Roll the taxpayer money back into the general fund. Use it for essential service only. The caveat: No more folly funding. The $1mil Hieftje folly fountain sure looks ridiculous amidst the budget issues facing the City. The DDA is reaching the same status, as it builds its immortalizing feature of reaching fulfillment of the Peter Principle, aka underground parking. Instead, plant the DDA concept underground. Put some flowers on it. Move on.
MjC
Thu, Mar 4, 2010 : 8:07 a.m.
"DDA fringe benefit costs are rising from $101,909 to $144,503, a 42 percent hike. That's largely due to increases in funding for retiree pensions and benefits, as well as health insurance costs." This problem should have been fixed a few years ago. That number will only grow unless some serious changes are made. DDA may wish they had kept that $2million.
Moose
Thu, Mar 4, 2010 : 8 a.m.
Fraser says, "But until it is, I can't count it, so my budget forecast doesn't change." That didn't seem to stop the city and Fraser from counting the phantom $3 million for the "air rights" for the proposed and now stalled, Village Green project at First and Washington.
Craig Lounsbury
Thu, Mar 4, 2010 : 7:59 a.m.
ditto what Steve Hendel said.
Steve Hendel
Thu, Mar 4, 2010 : 7:30 a.m.
Sounds to me like the City is efectively 'eating it's seed corn' by drawing down it's payments from the DDA on an accelerated basis.
voiceofreason
Thu, Mar 4, 2010 : 7:27 a.m.
Dear Ann Arbor DDA, Could you please take this $2M out of the fund for Avalon Section 8 housing on Main St.? If you are going to let City Council off the hook here, please stop`subsidizing downtown drugs and crime. Thanks.