Whatever Happened to the Library Lot Project? An Update

As readers of this blog know, we have been following the question of the Library Lot and the proposed conference center there for over a year.  (An index is on this page.) There was a flurry of activity about this time last year while the RFP Advisory Committee considered proposals in response to a Request for Proposals for the site (a new series on that history begins here).  Then there was a long dry period over the summer (discussed in the Signs and Portents post).  Finally,  information was obtained by the Ann Arbor Chronicle that an RFP Advisory Committee meeting was held on November 23, 2010.  The committee was reported (by a member, John Splitt, at a DDA board meeting in December) to have accepted the recommendation of the consultant, The Roxbury Group, to send a letter of intent to the Valiant Partners.  (See the account by the Chronicle.)

But since then, a mystery.  Every appearance was that the committee had met without public announcement and made a decision which was then not being explained. Was a letter being prepared? Had it been executed? Would it ever come to Council? Would the committee ever announce its findings in public?  Many of us who are interested in this question were sending emails and vainly checking the city RFP page for announcements over the last couple of months.

Finally, the clouds have parted.  The chair of the committee, CM Stephen Rapundalo, explained via email that the meeting was indeed posted (more about that in a minute) and has now made the minutes from the November 23 meeting available on the city website.  They are here.  There are several items of interest, much of which has been discussed in our (inexorably) lengthy series on the report.  But here is the key information:

“J. Splitt moved that the Committee accept the Consultant’s Report and direct staff to work with Valiant on a letter of intent that could be presented to Council, along with the recommendation of the advisory committee… Splitt, Teall and Rapundalo voted in the affirmative. Motion passed unanimously.”

(The minutes also make clear that only three members of the RFP advisory committee, CM Rapundalo, CM Teall, and John Splitt, were present.  Other persons present were Roger Fraser, City Administrator, and Susan Pollay, DDA Executive Director.)

Note that the members of the committee apparently made this recommendation solely on the basis of the consultant’s verbal report.  The written report, dated November 23 (the date of the meeting), unless it was circulated ahead of time, was apparently not scrutinized by the committee members.

Meeting posting and the Open Meetings Act

There has been a certain amount of comment lately in the press about the city’s notification successes and failures.  On the one hand, the city has instituted a number of notification systems to alert the public to meetings of public bodies.  This is in accordance both with the state Open Meetings Act and the council’s own Citizen Participation Ordinance.   It is possible to sign up for a number of automatic notifications by email.  I’m on a number of them, including RFP #743 (the Library Lot).  But in this case, the system failed.

The Ann Arbor Chronicle has been making something of a crusade over this issue, to the extent of a lawsuit against the city.  In a recent column, Dave Askin’s study of the problem of  “noticing” revealed that the City Clerk’s office is supposed to place the legally required notices in a glass-front case in City Hall – and this triggers the electronic notices.  Edward Vielmetti, the “Lead Blogger” for AnnArbor.com, has also been an advocate for open government and recently wrote a good summary of the systems the city has in place for noticing.  He noted that if items are placed (instead of in the glass case) on a “tack strip” nearby,  electronic notices are not triggered.

I have learned informally that the City Clerk (who has the electronic system in hand) is not the only person with a key to the glass case.  The City Administrator’s assistant also has one.  Apparently the notice for the RFP Advisory Committee meeting was placed into the glass case without telling anyone else.  Thus, transparency that was opaque to the rest of the (city) universe – unless you happened to be strolling through City Hall at an opportune moment.

Happy endings

The good news is, thanks to the intervention of CM Rapundalo, the message apparently got across and the minutes were finally posted on the city RFP page.  I’m hopeful that we will now see proper noticing of the anticipated February RFP advisory committee meeting.  According to CM Rapundalo, that will be the one where the committee reviews the draft letter of intent and discusses recommendations to the Council.  I’ll be there.

The Library Lot, the DDA, and the Ann Arbor RFP Process

Reflections on the mixed signals and confused motives behind the City of Ann Arbor RFP process for city-owned lots

The ordinary and usual reason that cities and other units of government issue a Request for Proposal (RFP) is to solicit bidders for a complex project, service, or device that cannot be purchased through ordinary procurement practices.  (The related Request for Quotation, or RFQ, is focused more on the cost of large equipment or other easily specified items.)  As such, the RFP is usually a completely administrative matter that never rises to the level of the City Council, for example.

But in recent years the City of Ann Arbor has attempted to use the RFP as a method of disposing of its real estate while accomplishing a number of objectives, including making money.  This has led to a lot of frustration on many sides and is the background of the current proposal from the Downtown Development Authority for the City to turn over the responsibility for managing this process to the DDA.  We’ll review some of that history and reflect on what the future of such adventures should be.

I. The Library Lot RFP

In many ways, the life of RFP #743 was typical for such documents.  It began with a statement of purpose, this time from the City Council.   The resolution was proposed by CM Sandi Smith and CM Marcia Higgins and passed with amendments on July 6, 2009.  It contained these lines:

Whereas,  City Council believes it will benefit the community to partner with a developer to develop this site (the S. Fifth Avenue underground parking structure) in a manner that forwards the City’s  plans for the downtown and provides a financial return to the City;

RESOLVED, That City Council requests the City Administrator to create and issue a Request for Proposals (RFP) for the development of the S. Fifth Ave. parking structure site.

Council also told the City Administrator that they would like the RFP to be issued no later than August 14, and to close it to new proposals after 90 days.

This gave staff only 5 weeks to write a text and assemble all needed information.  The job of assembling the RFP was handed off to a contractor, Ginny Trocchio, who works for the Conservation Fund, usually as staff for the Greenbelt Advisory Commission.   And indeed, the RFP has an issue date of August 14, 2009.

So what are the parts of an RFP?  Typically, it includes a clear statement of what is wanted, a timeline for receiving proposals, qualifications required for bidders, contact information and forms for submitting the proposal, and any information that bidders will need to complete a proposal (in this case, for example, site information).  And those are in this RFP.

But this RFP also has what is referred to in Trocchio’s email to city staff as the “brochure”.  The preamble and much of the RFP itself reads strangely more like a marketing brochure than a factual outline of requirements.

Aside from the typos (the name of the city is Ann Arbor, not Arbor) and the garbled syntax (the UM helps to shape the identity of Ann Arbor… “but also the rhythm of the year and the outstanding museums and performing arts venues providing a crowded calendar of events”), this reads more like a business recruitment message than a request for proposals.  And what do home prices, quality of the school district, and the educational level of potential employees have to do with a development atop a parking structure?

Clearly some of this language relates to the additional signals that the Council sent in its resolution.

RESOLVED, That the City Administrator shall incorporate appropriate elements of the Downtown Plan for identifying desired community objectives for the site, including open space, active uses at street level, and clear public benefits, which should be addressed in site proposals.

In this, the Council indicated that there were multiple objectives at play, including that elusive “public benefits”.  But somewhere an economic development objective crept in.   Thus, of four pages in the section describing the scope of the project, nearly three pages are devoted to further boosterish descriptions of Ann Arbor (awards are mentioned more than once), culminating in a recommendation that proposers consult 5 people for more information, in this order:

1. Mike (sic) Finney, Ann Arbor Spark (sic – should be SPARK)
2. Mary Kerr, Ann Arbor Visitor and Convention Bureau (sic – should be Convention and Visitors’ Bureau)
3. Cynthia Wilbanks, Government Relations, University of Michigan
4. John Splitt, Chair, Ann Arbor Downtown Development Authority
5. John Hieftje, Mayor, City of Ann Arbor

Of course, we know why this limited number of people are listed as resources (not technical or administrative people, but heads of agencies).  This was really about a conference center, as in the Secret Plan.  But as we noted in an earlier post, CM Sandi Smith introduced the concept of an RFP in order to regularize discussion and bring it out into the open.  So while the Council’s resolution sought to put that proposal on an equal footing with other possibilities,  its existence shaped the expression of the RFP.

Meanwhile, many other worthy objectives were inserted by Council, like public participation, public use of the space, environmental benefits, and adherence to the planning principles expressed in the Downtown Plan (revised May 2009)  and the “A2D2″ (Ann Arbor Discovering Downtown) zoning and parking amendments (approved November 16, 2009).

The RFP thus stated three objectives that proposers should meet:

• Beneficial use of the site (this includes the publicly available space)
• Environmental benefits (mostly LEED certification, energy efficiency being the flavor of the day)
• Financial return (“The proposal must provide a positive financial return to the City.”)

and provided a set of scoring criteria with percentages.

• Past involvement with similar projects (25%)
• Proposed work plan (how well it meets objectives) (40%)
• Financial capacity (25%)
• Cost proposals – lease return (10%)

In the next post of this series, we’ll look at how that worked out.

Economics of an Ann Arbor Conference Center III

This is the last in a series of three posts on the economics of an Ann Arbor conference center.   Part I questioned whether a need had been demonstrated for additional hotel and conference capacity in the Ann Arbor area.  It summarized a number of studies that show a decline in the use of physical conference attendance and discussed the drop in hotel business generally.  It also pointed out the number of conference locations already available in the Ann Arbor, including at the University of Michigan. Part II discussed studies on the impact of publicly-funded conference centers on cities.  In particular, it quoted Steven Spickard’s excellent summary of the issues involved.  It then discussed some of the practical reasons why an Ann Arbor conference center might have difficulty in pulling enough conference business to make the conference center itself economically viable.

The first two posts were modified from a white paper prepared by a subcommittee of Public Land – Public Process, a citizen group concerned with the effect of developing a conference center on the Library Lot.   The group’s statement of purpose is on its blog, Public Land – Public Process.  The authors of the white paper are Vivienne Armentrout, Nancy Kaplan, Eric Lipson and Leslie Morris.  Nearly a year has passed since it was first composed, so this post contains a number of changes and updates.

III. Effects of a new downtown conference center on other businesses and the local economy

One of the reasons given for using City of Ann Arbor property and financial support to establish a conference center and hotel on the Library Lot has been a general claim of its being a boost to “economic development”.  The purpose of this post is to examine what that might consist of. Without conducting market studies, much of what can be said about the effect of a conference center is speculative, but some probable effects and claims can be listed and examined.

a. Effect on Area Hotels: An obvious effect would be that new hotel capacity would draw business from existing hotels, both downtown and elsewhere. As noted in Heywood Saunders’ 2007 testimony to Congress, “These cases of public hotel development and ownership present an intriguing case of public projects, making use of the low interest rates available with tax exempt bonds directly competing against privately-owned and operated competitors, often directly across the street.”   Since hotel occupancy in the region is already low, new beds would doubtless drive down both occupancy and ADR, possibly causing some hotels to fail. It has been claimed (by Valiant) that a conference center would bring in new business that would spill over into other hotels, but as noted in section 2, that is unlikely.

Recent news that another downtown hotel is being planned at 202 S. Division complicates this picture.  The new proposed hotel will be built without public financing of any kind and is likely to proceed quickly, if approved though planning and zoning processes.  Clearly this hotel would be a strong competitor for the one at the Library Lot.  It would also put considerable price pressure on the Valiant partners’ hotel.  (Don’t forget that the hotel is supposed to bear the cost of constructing the conference center.)

b. Increased Downtown Business. Given the nature of conference activities, this is likely to be limited to downtown restaurants. Most conference attendees don’t have time for retail shopping, which is now limited in the downtown in any event.  Here is what the Roxbury report (which gives very little space to explaining the claims for economic development) says:

• Downtown restaurant and bar owners would generally welcome the additional business a large scale conference center could attract, viewing it as a good way to address the otherwise cyclical nature of their business.

(Note that, other than the Chamber of Commerce, business operators were not interviewed by the Roxbury consultants.)   Ted Annis, who published an opinion piece opposing the project in December 2010,  puts it colorfully:  “A dead zone usually forms around such buildings.”  That is, the presence of the hotel and conference center are likely to discourage local customers.

c. What About the Jobs? While there would certainly be employment, it is not clear that most would be “quality jobs”. The hospitality industry is marked by relatively low pay levels.  As shown in the attached table, employees other than the top managers would be at incomes below the Ann Arbor area’s median income, and even below the “low income” level.  (Note: the spreadsheets within the Valiant proposal that support their claims of payroll tax payments essentially agree with this assessment.)  Since these workers would not be able to afford housing in Ann Arbor, they would add to the commuters coming into Ann Arbor, and since their work hours would often not fit into current bus schedules, they might add to parking pressure also.

d. Parking: If the conference center absorbs most of the new parking in the underground structure, downtown business will suffer because of the lack of parking for their employees and customers.  This assumes that, as claimed in the justification for building the structure, this new parking was truly a critical need for downtown.  As Annis says, it “will drive out regular and occasional downtown visitors because of reduced parking at random intervals. Good luck to light retail.”

e.The High-tech Sector: Clearly a major driving force behind this concept has been the perception that having a shining new facility will be helpful in bringing high-tech small meetings to Ann Arbor.  This is presumably where the claim of enhancing “knowledge-based industries” in the Valiant proposal come from.  Roxbury consultants interviewed SPARK officials and offered this assessment:

• A first-rate hotel conference center in downtown would serve as a meaningful business attraction and retention tool.
  • Ann Arbor is increasingly seen as an entrepreneurial, innovation-based community.  The ability to host business and technology conferences downtown would allow Ann Arbor to showcase its appeal as an attractive headquarters location for such companies.

Of course, there are non-economic benefits that might be realized, including increased availability of meeting space that the AADL could use, and the convenience of having a new facility for use in local business gatherings.

As Spickard says:

“Legitimate public purposes can be served by having civic auditoriums and community meeting halls, and because there is that demand for day-use meetings in every community, even heavily-subsidized civic facilities have the potential to make some revenue by renting space for meetings.”

“The point, however, is to be honest in the community’s objectives. It is a mistake to try to justify development of a civic center for your own residents’ use by claiming it will have great economic impacts. Civic centers are public precisely because they serve social purposes, yet are not sufficiently profitable to be provided by the private sector.”

————

This concludes the series.

Note to readers: a complete listing of posts on this subject can be found on the Library Lot Conference Center page.

Sustainable Ann Arbor: Georgetown Reborn

There are two competing narratives today about Ann Arbor’s future.  One is Metropolitan Ann Arbor.   In this one, “Ann Arbor” is really a significant fraction of mid-Washtenaw County, and perhaps even beyond. (SPARK calls this our brand,  “Ann Arbor, USA” and this includes a business incubator in Plymouth, Michigan (Wayne County). The actual city itself is the center of a growing nexus of enterprise and development, with high-density residential buildings springing up along transit corridors (Transit-Oriented Development) that use sophisticated rail or other rapid, high-volume transportation, centered around the University of Michigan (see also our post, Our Shining City on a Hill).

The other narrative is Sustainable Ann Arbor, where local (city) residents foster interdependence and build connections and resources that will support us as a community over the long run.  Sustainable Ann Arbor is focused on becoming ever more a walkable and bikeable community where local businesses (run by local people) thrive, food produced in the immediate area is sold in farmer’s markets and local eateries, and where a quality of life and special character that is “home” is fostered.  Yes, I am talking about localization and making our city work for its residents.

Now that the Council is underway with budget talks, these two narratives are competing for resources.  There is plenty of grim news for the Sustainable side of the story.  So for that reason, the news that the ruin that is Georgetown Mall might be redeveloped is very good news indeed. According to AnnArbor.com, the new development would be called Packard Square and, from the description, would cover a good deal more of the land area at the site than the current buildings do.  From comments attributed to the developer, it appears that this may be the first development to take advantage of the new zoning resulting from the Area, Height, and Placement project (see detail of changes to the previous sections).  Those changes increased allowable heights, but more importantly perhaps for this case reduced the necessary setbacks.  I haven’t seen the proposed design, but the article indicates that  “The retail space would surround a public square, with a small amount of park space and some benches… Beyond the retail space, the apartments would surround a pool area. Parking would be largely around the perimeter of the property, with a total of 450 spaces and some located under the basement of the apartments.”  That sounds much more attractive and people-friendly than the old huge front parking lot.

Aside from a more attractive appearance and functionality, this is very good news because of its location.  This development comes at a time that the Packard corridor has been undergoing a number of interesting changes.  There have been a couple of new businesses near the upscale Morgan & York gourmet food and wine shop.  Fraser’s Pub has evolved from a smoky bar to a family-friendly neighborhood hangout with good pizza.  With the business development at the corner where Food and Drug used to be (NW of the intersection of Stadium and Packard), the area has a deli, a good liquor/wine shop, a coffee shop, and still keeps its Dairy Queen for summer ice cream.  Do I sound like a booster?  Yes, I am, because this is exactly what a sustainable neighborhood should look like, with many different services available within walking distance.  And the Kroger at South Industrial, plus a number of other services, are not far away.

This last year I and my husband have been making an attempt to expand our walking range.  Thus I have taken to using a simple Google-map-based pedometer to calculate the distance to various locations within Ann Arbor.  I am pleased to discover that the distance from our house to the east side of downtown (and the west side of the UM campus) is only 2 miles.  Since we can now walk 1 mile very quickly without noticing it, and 2 miles with a little break at the end, this means that even when our local bus service doesn’t run, downtown is accessible to us without an automobile, at least in decent weather.

My definition of the good life (and the sustainable one) is being able to reach most of the necessities of life without climbing into an automobile.  Ann Arbor still has a very decent local bus system, though Metropolitan Ann Arbor is driving it toward service concentrated on commuters coming in from elsewhere.  Residents of the new Packard Square will be able to reach the intersection of Stadium and Packard by walking only 0.8 miles (perhaps 15 minutes) and the UM campus or downtown at 2 miles.  By bicycle, hardly any time at all.  And AATA’s Route 5 comes right up Packard every 15 minutes, 12 hours a day.

There will, of course, be some issues to work out, like perviousness (swales?) and details of the design as it affects immediate neighbors.   The preliminary plans call for 220 rental apartments and they will be “upgrades”, according to the developer.  There will also be a few additional service establishments. This is what urban infill should look like. No demolition of an existing neighborhood, instead a denser development within walking distance of downtown, in an emerging area.  And the neighborhood will no longer have to co-exist with a ruin.  The New Year couldn’t start off much better.

UPDATE: The Number One exhibit of  Metropolitan Ann Arbor’s tug on our city’s resources is the Fuller Road Station.  The recent article on AnnArbor.com, reporting on a recent working session about FRS, contains many pertinent comments from readers about this open sink for city funds.

SECOND UPDATE: Today’s AnnArbor.com story includes a rendering of the project.

Ann Arbor’s Budget: The Case for a City Income Tax

The second City Council budget retreat was held on January 8, 2011. It was painful, watching councilmembers’ bleak expressions as they took in yet another set of unappetizing choices for fixing the Ann Arbor financial problems.  (Handouts from the December retreat are now available on the City Budget page;  here is our summary of that meeting.)  I still remember the unwelcome position in which I found myself on the Washtenaw County Board of Commissioners when the first state budget cuts started coming down and we were helpless to save many worthwhile programs.  I personally voted to lay off at least 200 staff in one year.  Trust me, if you run for office, choose a growth period to do it in.

But while I was cutting, for example,  special assistance to mothers of newborns (the state withdrew support for that program),  this Council is looking at choices like cutting fire and police protection below workable levels; stopping municipal trash collection; closing a pool, an ice rink, or a golf course; and many other choices (some reasonable proposals, some off the wall) that will get them into trouble with a significant number of constituents and change the kind of community we live in.    At last, towards the end of the retreat, they slowly began to acknowledge that the City of Ann Arbor needs new sources of tax revenues.  Reluctantly, they began to talk about the option of a city income tax.

Actually, the Council can’t impose an income tax, or any of many other tax options.  They can only vote to put the option of an income tax on the ballot. I support putting the question of a City of Ann Arbor income tax to a popular vote on the November 2011 ballot.

Before you come after me or the councilmembers with a pitchfork, remember that this only gives voters a chance to decide whether they choose to be taxed in this way. It does not impose the tax on Ann Arbor voters (or at least, not the majority who vote for it, if it passes). Regardless, I know that many people have a visceral response (also known as a gut reaction) to the idea and many of the people whom I call friends seriously dislike it. But I’m calling for us to have that discussion.

Note that this question has come up a number of times; the last time that the Council came up to the edge and looked at it was 2009; see the excellent review of the question by the Ann Arbor Chronicle.  Several studies have been done to examine the possible effects and outcomes of a city income tax.   I was on the Budget Review Committee of 1995-96 that recommended a city income tax to resolve Ann Arbor’s structural tax problem: the fact that a large fraction of the city’s land mass (and potentially taxable property) is owned by the University of Michigan, which is constitutionally tax-exempt.  Yet the UM is the city’s major employer.  It made sense to us then to shift the tax base from solely property tax to partly based on income tax.  (Only the city operating tax millage is at issue.)  The Chronicle has made the study from that period (1997), as well as one from 2004 , and linked to the most recent study (2009), from the City’s website.  (Note: we have linked to the Chronicle’s articles that discussed the two prior studies, since comments made there may be useful.)  This blog post is not the time or place for an in-depth examination of these studies, but they should be useful in an ongoing discussion.

There are many wonky details to be explained in supporting a city income tax, and you will be hearing them again and again.  But I’ll resist for now, just conveying a couple of useful numbers.

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Total Ann Arbor city Taxable Value (currently):  $4.5 Billion.   Tax revenues from 1 mill of property tax: $4.5 million.  Rough estimate of additional revenue from a city income tax: $12 million.

Ann Arbor residents would be taxed at 1% of income (this includes rental and business income), after exemptions.  Non-residents would be taxed at 0.5% of income.  The Ann Arbor General Operating Millage (currently just over 6 mills) would be revoked.  (City income taxes are offset by a partial credit on State of Michigan tax returns, even if you don’t itemize.)

________________________________________________________________________________________________

The Council has until August to take action to put the measure on the ballot, and if voted in on November 1, 2011, would not have immediate effect. This has to do with complicated timing whereby property taxes are paid for the prior year, not the current year; so property taxes paid in 2012 are actually in respect to 2011.  So according to City Administrator Roger Fraser,  the switch would happen from taxpayers’ perspectives in the calendar year 2013.  In that year, the income tax would be applied and Ann Arbor taxpayers would be relieved of the city general operating millage (currently just over 6 mills) payment for 2013, but would begin paying income tax.  But the city budget will be halfway through Fiscal Year 2014.  (Council is now working on the FY 2012 budget, which takes effect July 1, 2011.)  So in city terms, if we vote in an income tax this fall, it will be two years away from affecting the city budget.  The time is now, folks.

This is really, really tough politics.  Council has backed away from this action over and over again.  I hope that they can summon the political courage to do this, regardless of their personal feelings about an income tax.  (Councilmembers may put an item on the ballot and then fail to support its passage if they choose.)  The income tax has been alleged to have had a role in the defeat of Leigh Greden in his 2009 bid for re-election, and the question has frequently been raised in election campaigns since then.

Here are just a few of the arguments I’ve heard against putting the income tax on the ballot and my responses.

1. The council is trying to tax us against our will.

Nope.  Putting the measure on the ballot is exactly what many of us have been calling for: an opportunity for a vote of the people on important financial decisions.  (Remember Ask Voters First?)  Putting it on the ballot is only the first step in a vigorous debate and plenty of time for argumentation and fact-finding on all sides.

2. I don’t trust those people to spend the money correctly.

Well, you go with the council you’ve got.  If you don’t trust them to spend more money properly, do you trust them to cut your services and sell off our city treasures?   Individual bad ideas or wrong-headed votes should be dealt with as they come up.

3. It’s really about the employee benefits and overly generous pensions.

Council certainly needs to pay attention to pension finance issues, but they are helpless in some cases because of labor contract negotiations.  Especially with “Act 312 employees” (police and fire personnel, whose contracts are subject to binding arbitration because of Michigan P.A. 312 – and cities usually lose), labor unions can hang tough and resist losing benefits, even when the alternative is losing jobs.

4. The city really has plenty of money if they would just manage it right.

I guess that this is a matter of faith to some extent, but I believe the budget projections.  Even if they are not correct, the council and administrator will act as though they are and the character of our community is at stake.

5. Look at the really bad decisions they’ve taken in the past.

Although I’ll always join the Greek chorus of  “I told you so” on the Police-Courts building (never was so ugly a building purchased for so much, or at least not lately), the past is the past and we have to deal with now.  The thing to do is to hold individual councilmembers responsible for their actions rather than holding the whole city structure and budget in harm’s way to get even.

6. Look at all those favors to developers, the push to develop city property, etc.

One could argue that the lack of secure revenue has caused a warped policy in many cases.  This includes cockamamie efforts to act as a venture capitalist using city property, and treating the DDA parking revenues like an ATM.  Maybe we could get a kinder, gentler city government without those stresses.

7.  It is unfair to renters since they don’t get out of property tax.

If we assume that many renters are lower-income, they are the ones who suffer most when user fees are increased and human services are cut.  The exemption level should be carefully adjusted to exclude much impact on very low income persons.  Many renters are UM students who are supported by their parents.  Higher-income renters can afford a modest payment to the city.  Rental rates might actually come down.

8. It will cause a mass exodus of business and people from the city.

That prediction should be part of the debate around whether to pass the measure, not about putting it on the ballot.  We have lots of studies to study, lots of voices to hear, lots of numbers to crunch.  If it is really a bad idea, there will be an opportunity to defeat it.  Further, if people have any doubts, they’ll vote no.  They always do.  But if it is not on the ballot, we can’t have that discussion.

There will, of course, be winners and losers if the tax structure changes.  We’ll each be evaluating its effect on our personal circumstances as we come to the ballot box.  But if the current situation is allowed to continue, we all lose.

Ann Arbor DDA: Tiffs and TIF

Ann Arbor's downtown, from the DDA website

Those who are not meetings junkies (as I am) may not be aware that the minutes do not capture an important facet of these meetings: the interaction between board members.  It is a form of theater for those who care to watch.  Good boards develop a group identity and work together to achieve goals.  But there are stresses and strains as some members strive to convince others of a particular point of view and others use spare statements to communicate important messages about positions and their implications.  At the Ann Arbor DDA (Downtown Development Authority) board retreat for January 5, 2011, it was a pleasure  watching the DDA (which I characterize as a very good board) work through a meaningful board retreat at which they set real goals and made real effort to communicate with one another.  They are also fortunate in having excellent staff support. Their financial officer, Joe Morehouse, prepared a set of spreadsheets to help them walk through a 10-year plan.  Susan Pollay, their executive director, has mastered the light touch in helping the board arrive at conclusions.

The main fireworks at the retreat were what I am calling a “tiff” between Newcombe Clark and Ann Arbor’s Mayor, John Hieftje.  It provided, frankly, good entertainment as they displayed (politely but with strong expression) some real differences of opinion as to the purpose and direction of the DDA.   Clark persistently attempted to establish the primacy of the DDA as an independent organization, while Hieftje stated simply that he regards the DDA as an arm of the City of Ann Arbor, not as a separate entity.

This is a significant question (and one on which I would side with Clark, although not in many of his other positions).   As has been admirably summarized by the Ann Arbor Chronicle,  the DDA has two basic revenue sources and fund accounting.  One is the parking fund, which until recently has been entirely separate from the other TIF (tax increment financing) fund.  The parking fund has paid for parking structures and parking administration, while the TIF fund has been used for the original mission of the DDA as defined by state law, namely the revitalization and development of the downtown.  TIF expenditures have fixed sidewalks and alleys, made grants to various organizations (like GetDownTown and AATA for certain transportation initiatives and Avalon for housing), and more recently grants for energy saving measures to downtown businesses.

But the City of Ann Arbor in recent years has been demanding payments from the DDA, ostensibly as rents for the parking structures.  This has resulted in, among other things, parking fee increases.  (For another post, the whole question of whether increases in parking fees just for revenue violates the Bolt Decision.)  The payments have been $2 million per year for several years, and this has depleted the reserves in the parking fund.  This occasioned the formation of a “Mutually Beneficial Committee” (a good recent account of DDA Finances by the Chronicle summarizes some of their discussions).  The committee, which consists of DDA members and councilmembers, has been negotiating for months trying to arrive at a workable compromise.  Today’s retreat had DDA board members facing up to the loss of ability to make TIF expenditures because of the continuous drain on finances by the City.  At one point, with continual complaints and comments by Clark about this situation, Hieftje shot “do you think those projects are more important than police and firefighters?”.

One issue was the cash balance that the DDA should keep.  That’s the amount in the checking account.  There are accounting balances in both parking and TIF funds, but they are essentially commingled in an account from which checks are written.  As the parking fund has dwindled, the TIF fund’s contribution to the checking account becomes more important.  The projections the group were looking at set a checking account balance (distinguished from a fund balance, which is more of an accounting creature) of $2.5 million at any time.  But under questioning, Joe Morehouse (who has to write those checks) granted that he would be more comfortable with a $3.5 million floor.  He said that at times with the construction of the 5th Avenue underground parking structure, some single checks written to the contractor are in the amount of $2.5 million.  So the board reset the spreadsheet (projected on a screen in a fully interactive mode) at $3.5 million.  This decreased the amount available to TIF expenditures even more.

The 10-year plan being discussed had calculated payments to the City on a percentage of parking revenues.  Clark tried to propose that the city’s payments should be tied at least in part to a percentage of the TIF revenues.  This occasioned a stern and final-sounding rebuff from the budget presenter, Roger Hewitt.  Clark was apparently not sensitive to the political and legal implications.

Here’s the problem: as explained in the Chronicle articles, the TIF revenues are collected from several jurisdictions, including the City of Ann Arbor, Washtenaw Community College, Washtenaw County, and the Ann Arbor District Library.  But those revenues are not to be distributed to one of the contributing entities.  The executive director of the AADL, Josie Parker, reported to her board that she was monitoring the situation with the DDA and was urged to make sure that tax funds that could have supported the AADL were not shifted to the City for its general fund.  (See this article from the Chronicle and followups.)  There was a casual question at the DDA retreat about what had been heard from the AADL and Pollay’s answer was that no formal inquiry had been made.

But the DDA and the City are already skating on extremely thin ice.  The blockbuster news from my perspective today was that the payments on the bonds to finance the 5th Avenue underground parking structure will be made for the next 5 fiscal years from TIF funds. That’s a total of $8,481,047 transferred from the TIF fund into the parking system.  Over that same period of time,  approximately $12.5 million (the number moves around depending on current negotiations and formulas but is about $2.5 million per year) will be moved from the parking fund into the City general fund.

Roger Hewitt tried to explain why this was not a problem.  He said that the TIF funds are routinely used to pay for construction, and this is just another example of that.  But the fact is that all parking structures were previously paid for by the parking fund, which was funded through parking fees.  The other TIF construction payments have been for street and pedestrian improvements.

It appears that the thin membrane between TIF revenues and parking revenues has been pierced and the City of Ann Arbor is now slated to receive regular payments from a parking system supported by TIF revenues from the County, WCC, and the AADL as well as the City.  The other units of government should take a hard look at this.

The Balance Sheet for the Valiant Proposal for the Conference Center

A common approach to decision-making, particularly in a finance context, is to devise a “balance sheet” of pluses and minuses.  For a public entity like the City of Ann Arbor, these will not necessarily take the form of a traditional business balance sheet, but should include both dollars and cents items and policy goals.

With regard to the City’s search for a decision on the fate of the Library Lot (which has been extensively documented on this blog), there are several questions that need to be addressed.

Policy issues:

1. What is the importance of this site to the long-term health of our city (as a community and a business center) and what uses on the site would best support that?

2. Who should make that decision and what information do they need in order to make it?

3. What weight should be given to different types of benefit and to different groups to be benefited, and should that weight be placed mainly on economic considerations or are there more intangible benefits that are equally or more important?

Financial issues:

1. When we speak of financial benefits, are we speaking of specific financial gain for the City of Ann Arbor that will help our city government to balance its budget and to avoid further loss of services and/or increases in taxes and fees?

2. Or are we speaking of a predicted financial impact on economic development activity in the greater Ann Arbor area?

3. To what extent does #2 influence #1, that is, if the area’s economic activity increases, what is the effect on the specific revenue and expenditures of the City of Ann Arbor?

Risk and certainty:

1.  Should actions taken by our City government be based on a reasonable certainty of a positive financial outcome directly to the city coffers?   This would be for example, a contract, or a tax revenue stream that was secure.

2. Or should the City behave as a venture capitalist, leveraging future debt and city property against the hope of gains in the future?

Okay, those last two questions were loaded.  But what is your answer?

Getting down to the specific question, namely the Valiant proposal for building a hotel-retail-office-residential project that would then supposedly fund a conference center:

Strictly from a financial viewpoint, what is the advantage to the city of building a conference center?  How much risk should the city assume to make that happen, and at what cost?  In other words, is the main objective

a. To achieve a conference center; or

b. To get a substantial financial benefit to the City coffers directly?

Councilmember Stephen Rapundalo has been a major proponent of the development of the Library Lot and has also been a vocal worrier about the state of the city budget.  As chair of the RFP Advisory Committee,  he had a strong influence on the decision to dismiss the two open space proposals that were submitted and to focus on only two of the other proposals (Valiant and Acquest).

In a widely circulated email dated January 7, 2010, CM Rapundalo enunciated clearly how he regards the importance of a direct financial benefit to the City:

Any successful project has to pay for itself without the use of City funds. Furthermore,the project should be able to describe in some basic fashion how it will do that as a minimum to meeting the RFP requirements. … The fact is that there has to be some sort of payment to taxpayers either through land sale and property tax revenue, long-term lease payments, or some guaranteed revenue streams.

Taxpayers must be left intact at the time of build and for the future …Any economic benefits generated by a project must be disclosed and articulated in a balance sheet. That’s what we’re asking for when we say that a financial benefit must be demonstrated. It’s simple math. Of course, that does not exclude all the other elements that must be addressed, i.e., experience with actually building such a major infill project, a viable development team, physical concept and design, etc.

Bottom line – I’m happy to review and compare any project with any design concept so long as they can provide me with a full accounting, profit-loss, balance sheet and description of all other requested features.

So there you have an important opinion on what a “balance sheet” should be.  We’ll examine how the Valiant proposal stacks up against that in the next post.

What’s in the Box III: Feasibility of the Valiant Proposal (Part F)

As we noted earlier, the Roxbury Group was hired to assist the City of Ann Arbor in reviewing proposals for the Library Lot.  The City issued RFP # 758 in seeking this assistance.  But in addition to failing to address the call in that RFP for analysis of the financial feasibility of the project, the consultant also left incomplete another task:

• Determine if respondents are financially stable and have the capacity to complete their projects as proposed

The original presentation of the idea of the consultant, outlined by DDA Executive Director Susan Pollay (as quoted by the Ann Arbor Chronicle),  was to “(assess) whether the developers are financially solvent, including what other projects they might be committed to already”.  The finished report does address this, very briefly, but not reassuringly.

Here is what the report says:

… the Valiant team has been assembled specifically for the purpose of developing a project for the Library Lot. As such, Valiant Partners LLC itself lacks a specific track record of development involving all team members from which to measure it against the criterion. …

Valiant team members do present a satisfactorily deep level of experience in financing, developing and managing complex, mixed use projects, many involving elements of the project they have proposed for this site, and some involving far more aggressive public-private partnerships than are being proposed by this site. In particular, the development experiences brought to the team by Michael Bailkin, along with the depth of design and construction experience offered by Carl Luckenbach and Skanska suggest that the team has sufficient depth of experience under this criterion.

That said, the successful implementation of a project of the scale and complexity proposed by Valiant would likely require the identification by them…of locally-based project management expertise as an extension of their team. Valiant indicated in the interview process that their intention would be to engage such a resource during the predevelopment phase of the project.

The credibility of the development team is a key factor in whether the City should entrust a major project like the Library Lot development to it, especially because it will ensnarl the City in a complex financial arrangement.  Since Valiant has now asserted that they will seek bonds to finance the conference center “on their own credit”, this is especially key.  (Note: Luckenbach and Skanska are not members of Valiant Partners, but are merely consultants to it.)  Thus, the last segment of this series will be to examine what we know of this entity.

7. The  Valiant Partners LLC

As their proposal states, this group of four men (or three men and the principal of a corporation) came together in April 2008 to “to plan, design and develop the Ann Arbor Town Plaza mixed-use project”.  But they are not actually a partnership.  They are a Limited Liability Company (est. in Connecticut).  Here is what the IRS says about LLC-form businesses:  “LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.”  While members of a general partnership are liable for all actions and debts of the partnership, members of an LLC are not vulnerable to having their personal assets at danger.

Three members of the LLC are individuals who have been involved in various forms of business initiation and management, but only one of them, Michael Bailkin, has been involved in real estate development projects.  Bruce Zenkel is described as an investment banker and Fritz Seyferth was a UM football player in the glory days of Bo Schlembechler who has since served as a management consultant, worked for a time in the UM Athletic Department, and has been a fundraiser for numerous nonprofit causes.  The fourth member is Gemstone Hotel & Resorts, via its principal Thomas Prins, who has had a career in the hospitality industry.

Michael Bailkin has been given the title “Mr. Incentive”.  His real estate practice (mostly in the New York area and nearby) has been closely involved with obtaining government incentives for big development projects.  (Note to reader: “government incentives” means tax breaks, subsidies, etc.)  As an article in the New York Observer noted, he ” is known as the best go-to guy if you’re a company looking for a tax break from the city”.

So unlike another development company that has worked in the Ann Arbor area, Joseph Freed & Associates, whose website states that they are “entrepreneurial real estate company that develops, acquires and operates retail and mixed-use properties nationally with dedication to long-term value creation”, this is a group of three deal-makers and a hotel chain, with no long-term involvement in specific projects.  (Freed was the developer of Ashley Terrace in Ann Arbor, which has been in foreclosure according to AnnArbor.com.)

Here is the team’s balance sheet from the proposal:

As you can see, the amount of cash the group actually had on hand when they submitted the proposal was about $38,000.  My interpretation of the other figures is that they had collectively spent $327,000 on the project up to then (including the money in the cash account) but had some debts (slightly over $100,00) outstanding.

Several questions arise.

1. What does Valiant hope to get out of this deal?

One of their members is a hotel developer and it presumably hopes to operate a hotel.  The other partners, we assume, would have some small remuneration coming directly from that.

The project budget contains a number of contingency lines, but also a $500,000 development fee and $1,000,000 in commissions.   These sums would compensate them immediately for cash out of pocket and some of their effort.

While the city is paid in part from condominium sales, likely those and the retail and office portions would return a fair profit to the developers, after construction expense.

2. Are they likely to get private financing?

The answer is probably Yes. Note that the Primary Mortgage pays for most of the upfront construction (other than the conference center) and don’t forget that it takes precedence over all other financial arrangements, including the bonds and any payment to the city. Also, it appears that Capital is stirring and is looking for opportunities.  According to a recent article in the New York Times, even hotel and apartment developers who have had properties go into default are finding backers.

3. Is it reasonable to ask them to take on long-term debt in the form of Economic Development Corporation bonds?

The answer from here is No.  It appears that the whole reason for existence of this group is to pull off a complex real estate deal.  The only long-term aspect is the hotel operation, which of course could be sold or simply partitioned off to the hotel operation member.  They have no real assets.  And they are an LLC, meaning that they are not individually liable for debts the group incurs.  We have tried to illustrate in this series that the money is not likely to be there to pay debt service on the bonds, and as stated in a previous post the conference center itself might be at some risk if a lender did not receive payment.  (Recall again that the bonds are subordinate to the primary mortgage.)

4. Wait, what was that about a project management group?

As commented by Roxbury, the Valiant LLC does not itself have the expertise to actually manage the fine details of bringing the project to completion, but would have to depend on its consultants, including an as of yet unnamed project management group.  We don’t know where that expense would be assigned, as it was not part of the original project budget.

In sum, it looks from here as though there is considerable risk to the city in getting into a business relationship with this group.

We’ll try to wrap it all up in a future post on the balance sheet.

Note to readers: this series began with the first What’s in the Box post on December 3, 2010.  A complete listing of related posts is on the Library Lot Conference Center page.

UPDATE: A recent story on AnnArbor.com relates the sale of another Joseph Freed property, 4 Eleven Lofts on Washington, to a Texas company.

In the New Year, Charity Towards All, With Exceptions

The Ann Arbor Chronicle capped off its year with an essay on panhandling. This sent me off on some reflections about the whole charity and giving thing, especially but not entirely with regard to panhandling.  So please bear with a slight diversion from my relentless march across the Library Lot.

First, some personal experiences.  Though I usually ignore panhandlers, here are a few times I was caught.

1. Cart man One day a year or so ago, I had just loaded my car with groceries from Kroger and was heading, somewhat tired and dispirited (a Michigan drippy gray day) to put away the cart when a white man of middle years stepped out and respectfully asked if he couldn’t put that away for me.  I accepted with gratitude, but when he had my cart in hand, he asked for money.  He said “I’m hungry”.  I suggested that we should go together back into Kroger and buy the wherewithal for a sandwich.  He said he could eat better and cheaper at McDonald’s.  At this point, rather disgusted, I pulled out a couple of dollars, whereupon he said “I have a friend”.  While I was considering this, a Kroger employee stepped up and warned him off.  Apparently he had been making a career of such approaches and they had posted someone in the parking lot.

2. Implied threat Some years ago my husband and I were cutting across the UM campus from State Street to the South University area when a young very tall black man suddenly appeared and demanded “money for gas”.  It was evident that no was not an answer, so we forked over several dollars and escaped.

3. Piteous Several years ago my husband gave money to a panhandler on State Street.  She was an older white woman who stepped up to us with a pitiful expression and a bleated “Money for foooood!” appeal.  Later she was featured in the Ann Arbor News as someone who was living on a retirement income and had been able to supplement her income nicely in this way.  She was not starving.

4. Performance artist Over a decade ago I was walking south on Detroit from Zingerman’s when a black woman in her 40s approached me with a distraught look and a frank appeal for help.  She told a confused story about her son in Grand Rapids and her need to get a bus ticket to see him, but she had to get to a friend who would help and she had no transportation.  I took her to my car, parked nearby, and drove her to a house on the west side, but she asked me to wait.  She emerged to say that her friend was not there or had no money.  So I was driving her toward the bus station when she said “Do you have any bottles (to sell)?  I truly had no money with me so I drove to an ATM and withdrew $20, then dropped her at the station.  She kissed my cheek with a “God bless you” and I drove away with a tear in my eye.   Later I read in the Ann Arbor Observer that she had approached a number of people in the general Kerrytown area, even going into office and commercial buildings, and had conned quite a few of them.  She was very good.

(Note: I include the race of the individuals because that is part of what we react to when confronted by a stranger.  I am not making a statement about any group.)

So why do we give money away?  What are sometimes called “charitable donations” fall into a number of categories.

1. Because we feel obligated (social pressure) I’d say that many political and religious donations fall into this category.  I’ll give to a candidate whom I support on the principles, but often also simply because I’m expected to.

2. Simple self-interest Some nonprofit organizations fulfill a goal or need that we hold personally.  For example, when I give to a land conservancy or an environmental organization, it is because those things matter to me personally.  And many donations are literally a ticket to opportunity.  For example, by giving to the Michigan Theatre or the Matthei Botanical Gardens/Arboretum, I get information on events and discounts.

3. Value received Some donations are earned because of entertainment value or social events.  Lots of charitable fundraisers are based on this principle – eat dinner with interesting people!  Listen to music!    Or individuals provide the entertainment value through performance or sheer personality.  I’ll always give to buskers because they bring me joy.  (Wish they were legal in downtown Ann Arbor, have not figured out why not.)  And Shakey Jake became a phenomenon in his own right, beloved by many.

4. The greatest of these is charity I believe that true charity stems from our sense of common humanity, empathy, and compassion. This is a phenomenon also referred to as social altruism and it is thought to be hard-wired in us.  Even little children display concern when another person seems distressed.  It is, in my opinion, one of the finer aspects of being human.

So here’s the problem with panhandling.  It manipulates and distorts this natural empathetic impulse to help another. By doing so, it may influence our learned behavior toward others and diminish the natural empathy that we each feel toward another in need.

Consider my experiences.  OK, the campus experience was more extortion than request, but it had the unfortunate effect of reinforcing the stereotype of young black males as threatening.  Too many such experiences and it is difficult to respond to another such individual with a free open feeling of common humanity.

In each of the other experiences, there was a cynical manipulation of social feeling.  Cart man appeared to be doing me a favor (an apparent altruistic act) which helped to establish a social connection.  That was then exploited.  Piteous pretended real need when she was really apparently just supplementing a decent income.  And the Performance Artist very skillfully worked on my empathy to establish a deep human connection.  (I’m considered fairly bright, but imagine driving a con artist to your ATM!)

Is it right to exploit another’s altruism?  I don’t agree with Tate Williams of Camp Take Notice, quoted in the Chronicle story to say that we are all panhandlers.  Yes, in ordinary human interaction we ask others to trust us and help us in various ways, but that trust is a precious and fragile thing.  Panhandling for money that is not really needed to support life is in a sense an abridgment of that trust.  I believe that one of the problems in our country today is a loss of trust in and empathy for others, especially those who are not like us. False demands foster cynicism and distrust.

And yet – we must support the needs of those whom we (perhaps euphemistically) call the less fortunate.  How can we do this without being conned and manipulated?

Here’s my solution: Give as generously as you can afford to local agencies that provide services for basic survival and well-being.  My personal choices are Food Gatherers and the Shelter Association.

Food Gatherers is a highly effective organization that has become a major part of our social safety net.  I’ve participated in studies they did on hunger and have seen some of their operations. You can be sure that your donation is used to its very best outcome.  (And as nice as it is to donate a few cans of food, a check is best.)

The Shelter Association of Washtenaw is a coordination center for many services that aid the homeless and near homeless.  At the Delonis Center, they offer hot meals, health services, mental health and substance abuse assistance, and many other direct services and referrals to non-residents as well as temporary residence for a few lucky souls.  (I was one who wanted a larger shelter originally, but oh well.)

I feel better since I sent in my year-end checks.  It’s not too late for you to do the same, though you’ll have to wait till 2012 for the tax deduction.  Happy New Year.