$2 million from DDA could help close Ann Arbor's budget gap

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.