Ann Arbor DDA accepts advice of its attorney not to redistribute additional excess tax captures
The Ann Arbor Downtown Development Authority's governing board emerged from a one-hour closed door meeting with its attorney today and unanimously decided on its answer to a lingering question: It won't be returning any additional tax revenue to local taxing units.
DDA officials hope today's decision, on the advice of attorney Jerry Lax, puts to rest an issue that first surfaced in May, when it was discovered that the DDA collected too much money since 2004 through tax-increment financing in the downtown district.
The DDA is partially funded through TIF — or tax-increment financing — revenue, meaning it captures the increase in taxes resulting from new construction and improvements downtown.
In May, city officials stumbled across a forgotten section of the city code from 1982, which states if TIF revenue grows faster than expected and hits certain targets, the DDA is supposed to kick back excess money to the taxing units the funds are being diverted from.
According to the DDA's calculations, nearly $1.2 million in excess TIF money was captured since 2004.
About $711,767 of that was owed to the city, but the City Council voted in May to forgive the DDA, citing other financial support the city has received from the DDA over the years.
Meanwhile, the DDA agreed in May to return about $473,000 to three taxing units: Washtenaw County, Washtenaw Community College and the Ann Arbor District Library. DDA officials say checks already went out to those three units to repay them for the excess captures.
But the Ann Arbor Chronicle has continued to question the DDA's calculations, arguing that potentially hundreds of thousands of dollars more might be owed to the various taxing units. The DDA, with its vote today, decided it won't be changing its calculations.
"I thought the interpretation that the attorney made was consistent with the ordinance," said Mayor John Hieftje, also a voting member on the DDA board.
The nine members present for the vote were Hieftje, Chairwoman Joan Lowenstein, John Splitt, John Mouat, Newcombe Clark, Gary Boren, Keith Orr, Leah Gunn and Roger Hewitt.
Based on the opinion of the DDA's attorney, there is no requirement to redistribute any of the TIF payments, said Lowenstein, who also is an attorney.
"It's very simple really, and it's confirmed by state statute," she said. "What the state statute says is that you just can't collect TIF and sit on it. And if you do that, you have to redistribute it to the taxing units. But if you're spending the TIF, as we are, then no distribution is required."
Lowenstein said most of the TIF money the DDA has captured over the years has gone into construction of parking garages and streetscape improvements downtown. She said city ordinance clearly states that if there is bond indebtedness, the DDA's first obligation is to pay off the bonds that are used to improve the downtown.
"And after that, if there's money left over, if the DDA is not spending the money, then it goes back to the taxing units," she said. "And that's not the case here."
Asked why the same argument wasn't applied in the case of the $473,000 already redistributed, Lowenstein said DDA officials hadn't come to that realization yet. After reading the law more closely, she said it appears the same argument would apply, but the DDA isn't going to go back now and ask for its money to be returned.
Lowenstein said she's unsure if any of the taxing units will oppose the DDA's decision, but she doesn't think there would be any legal basis to challenge it anyway.
She also acknowledged the DDA's fund balance would dip uncomfortably low if the DDA had to make additional payments to the taxing units.
"We now are in a pretty tight time because we have taken on some big projects, so any dip in what we get from TIF would be substantial," she said.