The fact that the city of Ann Arbor and the Downtown Development Authority have yet to come to terms on a new parking agreement was apparent today as the DDA passed a two-year budget absent a sizable transfer of parking revenues to the city.

The DDA's governing board voted 11-0 to approve a deficit budget, which shows expenses for the fiscal year starting July 1 total $20.6 million. That's about $512,727 more than revenues, and the shortfall would grow to $1.76 million if the transfers to the city go through.

Roger Hewitt, chairman of the DDA's operations committee, said the DDA still expects to transfer $2.26 million to the city next year — a payment calculated based on 14 percent of the $16.2 million in parking revenue budgeted for next year. But that won't be reflected in the budget until a new parking agreement between the city and the DDA is worked out.

The two sides have been in negotiations for the past year, and officials expect to come together again on Monday to continue talks, Hewitt said.

"It's just a long and challenging process," he said.

Next year's budget does show about $1 million in payments from the DDA to the city, but those are under separate contract and aren't directly tied to the parking agreement. However, the idea is that those payments would go away if the $2.26 million parking revenue deal is worked out.

If a new agreement isn't worked out, the city stands to lose $1.25 million in the next fiscal year and another $1.4 million the year after, the budgets approved today show.

The DDA expects to take in about $3.9 million in tax revenue next year. Much of that will go toward funding two ongoing DDA capital projects — the underground parking structure being built on South Fifth Avenue and related improvements along Fifth and Division.

The total budget shows $3.5 million in capital expenses included in next year's budget and $6.1 million in bond payments.

The DDA also is budgeting $500,000 next year to put toward Avalon Housing's Near North affordable housing project, a 39-unit apartment complex slated for 626-724 North Main St.

Another $508,608 is budgeted to help pay for the city's new police-courts building, which now stands adjacent to city hall at the corner of Fifth and Huron downtown.

• Click here to view the rest of the budget.

In addition to running $1.76 million in the red next year, the DDA would run another $1 million in the red the year after if the parking revenue transfers to the city go through.

Hewitt said running deficit budgets was planned, and careful consideration was given to make sure the DDA's reserves don't dip below $3 million.

"The DDA has really spent the last decade building its fund balances up to a point where we could do major projects like the Fifth and Division project and the underground parking structure, where you need a lot of cash as well as bonding ability," he said. "So this is part of a long-range plan, and these couple years we knew our reserves were going to get spent on doing these projects, and we're going to be running tight budgets."

Mayor John Hieftje, who serves on the DDA's governing board and appoints its members, said the DDA's budget will "get better very quickly" after these next two years.

"We've recognized for a long time there was going to a bulge because of the new project," he said, noting the DDA usually underestimates its revenues and overestimates its expenses. "So it's a prudent budget, and I think it's going to work out fine. The revenues go up about $440,000 in 2012-13 just from two developments that are already under way."

Board member Newcombe Clark was absent today.

Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.