Did someone just mention money?

For fifteen minutes, DDA executive director Susan Pollay has led the Mutually Beneficial Committee through the first draft of an agreement between the city of Ann Arbor and its Downtown Development Authority. For more than six months they’ve been negotiating the terms under which the DDA manages the city’s parking, but this is the first time they’ve seen words on paper.

Though the committee has seven members, only two are at this late-October session—Roger Hewitt of the DDA and councilmember Christopher Taylor—along with Pollay and the city’s public services administrator, Sue McCormick. It’s Taylor who brings up money: could language be added, he wonders, that would “hold the city harmless” if the revisions reduce the city’s share of parking enforcement revenues (read: ticket money)?

Formed last spring after the DDA’s transfers to the city hit $12 million, the committee has the job of negotiating how much more cash the city will get, and what it is willing to give up to get it. But until now, the tug-of-war has been over how much the DDA’s power might grow. Taylor’s comment is the first time anyone has talked finances—and he’s played a card no one saw coming.

The committee seems unsure how to respond, so Taylor explains. “If the DDA is looking to move to a compliance-based system”—meaning more revenue from parking fees and less from parking tickets—”we can expect enforcement revenues to decline, which is an asset of the city.”

“Ticket revenues have been steadily declining for several years,” Pollay points out. “The difficult thing about creating a ‘hold harmless’ agreement would be that we’d have to determine at what point, when they continue to decline, it would be as a result of DDA action.”

“It would certainly be very complicated,” Taylor replies cheerfully. “But I’m confident if we left that to our very smart staff members you’ll be able to figure it out.”

A ccording to schoolyard rules, it’s the DDA’s turn to get its back scratched. They’ve been waiting since May, when, for the first time, they asked for something in exchange for the $2 million a year they’ve been giving to the city’s general fund. The first deadline for concluding a deal passed at the end of October.

The DDA’s board is appointed by the city, but the group has its own tax revenue and mission to enhance downtown. It’s managed the city’s parking structures since 1992, rebuilding and replacing neglected decks while also paying the city rent that approached $1 million a year. But as the budget crisis deepened in 2005, the city wanted more.

The DDA agreed to give an additional $10 million over a period of ten years, at a rate of up to $2 million annually. That brought the maximum yearly transfer close to $3 million.

Within five years the $10 million maximum was tapped out, and, like most cities, Ann Arbor was still scrambling for revenue. To bridge the gap, this spring the city asked the DDA for another $2 million.

“They needed it right away,” recalls DDA board member Gary Boren. “They had a budget shortfall and were threatening to lay off police and fire employees. Whether that was a political stunt or not, we didn’t want to be the cause of that.”

In a whirlwind of ultimatums, disagreement, and public outcry on both sides of the issue, the DDA board in May voted 7–4 to commit the funds, with no strings attached—or, at most, with the understanding that strings would be attached at a later date. Among those critical of that outcome was former DDA board member Rene Greff, who contended the transfers ran counter to the mission of the DDA and violated the board’s fiduciary duty.

Boren voted against the gift. “I wasn’t suggesting that [the city was] being disingenuous” about its need for the money, he says. “But I felt that it was premature to give them the money before the rest of the agreement was nailed down.”

Board member Roger Hewitt voted yes. “We felt there were things we wanted to change [in the original agreement], and the city wanted the financial changes in the agreement,” he explains. “There appeared to be a structure for a new agreement in place.”

That structure took shape as the Mutually Beneficial Committee—so named because it’s charged with reaching an agreement that benefits both parties.

In early discussions, the DDA came on strong: one proposal called for the group to take outright ownership of city property downtown. While that might not seem an unreasonable return for $12 million, and potentially much more down the road, the city quickly made it clear that wasn’t going to happen. After a few rounds through the Mutually Beneficial Committee, the proposal was reduced to giving the DDA the ability to formally guide the development process.

The idea is that the DDA would get involved long before the city issues a request for proposals (RFP) to redevelop a site. It would research the properties and consult with the economic development group SPARK on developer recruitment strategies and available incentives. After a public visioning process, the DDA would prepare site plans for each property to guide the RFP process.

“I am excited about the DDA’s proposal,” said MBC and council member Christopher Taylor. “They have energy, expertise and a commitment to imagine a better downtown.” However, Taylor adds in the same breath, the development of city-owned assets “is ultimately a city ­responsibility”—meaning that final authority will remain with City Council.

The committee also curbed the DDA’s parking plans. The group first floated the idea of extending its current authority over parking garages and attended lots to metered lots and on-street parking, including the parking enforcement staff.

Managing the entire system, the DDA argued, would further its goal of making downtown parking more “user-friendly.” Among other things, that would means writing fewer parking tickets.

“People don’t want to pay parking tickets,” Hewitt says. “Most of the complaints we have are from ticketing, not from the parking rates.”

With that in mind, the DDA has already reshaped the parts of the system it controls. Wherever possible, it’s replaced parking meters with either human attendants or automated systems. Instead of guessing how much to pay in advance, drivers are charged as they leave, for exactly the amount of time they’re used. Because they never run out of quarters, misjudge how long they’ll be, or gamble that they won’t be caught, those drivers never get parking tickets.

At street meters, drivers make all of those mistakes—and every month, thousands of them are ticketed. In the last fiscal year, the city collected $1.8 million in parking fines. The money went directly into the malnourished general fund.

But as Pollay pointed out, ticket revenue has been shrinking rapidly—a year earlier, it was $2.5 million. That’s partly thanks to the DDA’s own innovations. The new solar-powered meters the group paid to install throughout downtown accept credit cards, and a driver who’s running late can add time from any other meter, or even online.

From the city’s point of view, the lost ticket revenue is already bad enough. But if the DDA took control of all parking, it would either take the remaining ticket revenue with it or reduce it even further. The city wasn’t having any of that.

The official response was that the DDA couldn’t legally take over parking enforcement because its staff didn’t have authority to access police records. Though some DDA members disagreed, the board backed off its plan in favor of a less comprehensive approach.

“We determined that what the DDA wanted was not to take over the [parking enforcement] bureaucracy,” says Taylor, “and by working together with the city, we could achieve their goals without disrupting current practices.”

Assuming city council looks favorably on the DDA’s current proposal, members of the DDA may be on board with Taylor’s approach. The draft amendment includes several upgrades to the board’s authority over downtown parking, all of which fall under the DDA’s proposed new right to “operate and maintain the complete public parking system within an established Parking District.”

If the DDA gets what it wants, it would gain some authority over enforcement staff. By monitoring minimum staffing levels as well as enforcement hours and areas, it can make enforcement more responsive—and, by making ticketing more uniform, can potentially increase compliance.

For drivers, the biggest initial change would be that a good parking spot would cost more than a bad one. “The best practices say to use demand parking systems downtown,” Hewitt explains. “If the space on the street right in front of Gratzi is the best place in town, then it should be the most expensive spot.” Likewise, those parking in less desirable spaces should have to put less in the meter.

While some spots would cost more and some less, the DDA expects that overall, compliance revenue will rise when the changes are complete. It will have to, because a system that expands compliance will inevitably mean less ticket revenue—and, as Taylor made clear at the October meeting, the city wants the DDA to make up that loss.

Besides juggling hourly rates, the most likely way to boost compliance revenue is by extending meter enforcement into the evening—something the DDA is already on record as wanting to do. “What may happen is that the city may see revenue from tickets decline some, and the DDA may see the revenue from street meters increase,” Hewitt says. “We just need to find an agreement that will work for both sides.”

That resolution will play directly into a bigger financial question: exactly how much money will the city receive annually for these amendments to the parking agreement? While everyone expects the current payments of approximately $3 million to continue, the draft agreement would replace the current flat rate with a percentage of parking-fund revenue—in effect, a tax on parkers for the benefit of the city’s general fund.

The proposed amendments officially reached the city in a series of work sessions in November. Now it’s down to haggling over the details.

“I worry that we could be cutting either a political deal or a legal deal,” says DDA board member Boren. He’d prefer a “legal” deal that explicitly details the DDA’s authority with respect to both parking and the downtown planning/RFP process. “Everything would be right down there in ink,” he says.

But he suspects what may emerge instead is a “political” deal—one that would draw much broader outlines around the DDA and city’s roles. If that happens, he says, “we won’t really know what we’re getting [in the development process] until we go after it on a parcel-by-parcel basis.”

It’s such an injection of politics into the DDA’s decisions that worries some former board members. “The mission of the DDA is to spend public dollars to spark private reinvestment,” Rene Greff told the board in advance of its May vote to help with the city budget shortfall. “This resolution clearly will not serve that mission.”

Like Greff, Fred Beal was on the board when the transfers began, but was not reappointed when his term expired. “This is not entirely a revenue issue,” Beal says of the current negotiations. “It should be a parking management issue.”

“I don’t know if I can say for sure that different decisions would have been made if we [Beal, Greff, and Rob Aldrich, who also was not reappointed] were still on the board. But I can say there would be more pushback on this issue.”

Former DDA chair Ed Shaffran also criticizes the transfers. “The DDA has become the ATM of the city,” he complains. “The DDA has a mission, and it’s doing what it’s supposed to do. I think [the city] has overstepped their bounds. They’re taking $2–3 million and filling a shortfall of the general fund. That’s bull.”

The current board, though, is more sympathetic to the city’s needs. Most of the DDA’s funding comes from the rising value of downtown properties—a system called tax increment financing, or TIF. Hewitt points out that while the DDA’s TIF revenue legally must be dedicated to its mission, “the TIF fund is not involved” in the transfers. “The parking fund is where all this money is coming from, and we have sufficient revenue in the system to handle what we’re working on right now.”

Hewitt says the proposed amendments to the parking agreement should benefit visitors, businesspeople, and future development. Flexible parking rates and enforcement, for example, could allow for a more user-friendly experience for downtown parkers.

“If we were to see modifications to the parking agreement that take our parking demand concepts into consideration, and the DDA is able to undertake the master planning process for downtown properties, I think that would be very fair,” Hewitt says.

The price the DDA will pay for those benefits depends on how long the agreement runs. The original contract was set to expire in 2015, with the possibility of being renewed through 2018. The DDA has proposed extending the contract to 2033, when the group’s own authorization will be up for renewal.

If council agrees, the city would gain more than $40 million in additional transfers to the general fund over the life of the agreement—and possibly more, depending on the outcome of the hold-harmless negotiations. By comparison, the DDA’s new 600-space underground parking structure on Fifth Ave. is expected to cost about $50 million.

What the DDA gets in return remains to be seen. The current draft outlines plenty of specifics, promising the DDA more control. But the DDA itself was the author of that draft, which will surely change as council reviews it.

Boren hopes that councilmembers will keep the group’s unique status in mind. “The DDA is not some city department that needs to make cuts in hard times,” he points out. “DDAs were created so there would be a natural tension between the DDA and the city, in Ann Arbor or any other place. That’s why we operate independently.”

Steve Bean, who ran unsuccessfully for mayor this fall, thinks the transfers violate the Michigan Supreme Court’s “Bolt Decision,” which bars cities from skirting taxation limits by raising fees. Ann Arbor city attorney Stephen Postema disagrees. Mayor Hieftje relays his response that “the Bolt analysis only applies to assessments on real property,” and therefore doesn’t restrict parking rates.

If Postema is correct, only the DDA can limit the amount the city draws from the parking system—or at least, require that downtown gain something in return. Boren is still waiting for that reciprocal back-scratch. “I don’t want to be glib,” he says, “but there’s a possibility we’ll get something, or there’s a possibility we’ll get nothing.”

Councilmember Taylor argues that “The DDA does and will manage the parking system well and for the benefit for the downtown.” But, he adds, “I think it is for the benefit of the downtown to pay spinoff revenues to the city to provide services for residents.”

And that, to downtown stakeholders such as Boren, Shaffran, and Beal, could be just the problem. Beal points out that while the city approves the DDA’s budget and appoints its members, other governmental and educational units also sacrificed some of their tax bases to support its TIF fund.

“I’m sure those entities are looking at the city feeding off the trough, and thinking that if the city is going to take theirs, why shouldn’t they get some back too?” Beal says.

He isn’t the only one asking that question. After a November article in the Ann Arbor Chronicle raised the issue, Ann Arbor District Library head Josie Parker told her board that she would be seeking legal advice on the matter.

Boren, meanwhile, is looking forward to spelling out just what the benefit to downtown will be. “In spite of my skepticism, I don’t think anyone is being disingenuous,” he stresses. “I don’t believe we’re being cheated in any way. But when you’re dealing with a political entity, you don’t need to be cheated to not get what you want. I want to try to make sure that doesn’t happen.”

The good news for the DDA is that budget season is once again approaching. After all, the one certainty to emerge from the negotiations so far is that the city is reliant on that nearly $3 million coming from the DDA. Though council managed to get this year’s transfer without making any commitments, it will be hard to ask for another payment until a deal is done.

“Even as I voted against [the initial $2 million],” says Boren, “I knew they would come back to us again and ask for more money. So if we don’t get anything out of the bargain this time—we will the next.”