Ann Arbor Democratic Party RFP Resolution

While PLPP has not taken any position regarding a particular use for the Library Lot, we are encouraged by a resolution passed by the Ann Arbor Democratic Party at its monthly meeting on February 13, 2010. The resolution calls for an open space or town square, which goes beyond the scope of PLPP's efforts. Nonetheless, the Party's resolution recognizes that the Library Lot RFP has proceeded without appropriate public participation. We hope the Democrats on Council will be mindful of the Party's Resolution when the RFP comes before them.

The resolution passed by the Ann Arbor Democrats:

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A RESOLUTION CONCERNING DEMOCRATIC PROCESS AND THE

DISPOSITION OF PUBLIC PROPERTY WITHIN THE CITY OF ANN

ARBOR COMMONLY KNOWN AS THE "LIBRARY LOT".

Whereas, the Administrator oft City of Ann Arbor has issued a Request for Proposals (RFP) concerning the disposition of the public land commonly known as the Library Lot and the issuance of this RFP has been approved by the City Council, elected by the citizens of Ann Arbor to represent their interests; and

Whereas, the citizens of Ann Arbor have long held the hope that the Library Lot would one day be reclaimed by the public as a commons or town square because it is recognized that a city needs a physical center and Public space for the perpetuation and enhancement of its civic life; and

Whereas, the recent use of the surface of this public land as public parking will change with the construction of an underground parking structure; and

Whereas, the sale or long-term lease of any public land, should be accomplished only with robust involvement of the community in deciding the eventual uses and costs to the community of the loss of the land to the public; and

Whereas. the process for determining that the Library Lot parcel should be sold or leased for purposes of private development has been neither transparent nor responsive to long-standing community concerns for the future of this parcel; and

Whereas, the citizens of Ann Arbor have neither assented to the sale or lease of this property nor indicated that a partnership between our city and a private developer would be beneficial; and

Whereas most studies on the subject have shown that partnerships of this nature for convention/conference centers, stadiums and other such projects have not been proven to be financially sound forms of community investments; and

Whereas, that the selling or leasing of the Library Lot to any private parties would irreparably harm the citizens of Ann Arbor and that no sum of money could recompense the citizens for the loss of a central place of convivial community engagement.

Now be it Resolved by we, the Democrats assembled here today at this monthly meeting of the Ann Arbor Democratic Party, that the City Council of Ann Arbor institute and support a public process for determining the future use of this property that must include robust public involvement, which has not, to this date been accomplished; and it is further

Resolved that we encourage the city government to support the development of a commons or town square in the center of the city for the promotion of civic virtues which are central to citizen centered democracies; and

Resolved that the selling or leasing of the Library Lot to any private parties should not happen without approval of the voters of Ann Arbor; and it is further

Resolved that the City Council, as our elected representatives, should not approve investment of any public funds in any private development of the Library Lot, and that any private use or development of the Library Lot must be proven sound enough to be financed through private funding.

The Library Lot Parking Spaces and the Developers

One of the open questions surrounding the proposals for development on the Library Lot is just how many of those new parking spaces will be allocated to the development, if it proceeds, and how many will be for public parking. Comments from the two proposers of hotels and conference centers seemed to indicate that they were expecting to use a substantial part of the parking structure to support their development.

Another aspect of the city’s financing of the parking structure is that costs of site preparation and structural hardening that a developer would normally bear are included in the city’s construction costs, and therefore constitute a developer subsidy.

Ann Arbor attorney and CPA Karen Sidney has been watching this issue carefully, especially with regard to the legal questions this raises with regard to the city’s bond offering. There are some special twists due to the city’s using the Federal stimulus Build America Bonds, which carry some restrictions.

Here is part of the summary she has prepared, and the questions she asked Ann Arbor Chief Financial Officer Tom Crawford. (The text of her original email has been shortened and lightly edited.)

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The on-line offering for the LTGO capital improvement bonds of $49,420,000 indicates that the city will elect to have these bonds treated as direct payment Build America Bonds. Among the requirements for direct payment Build America bonds under the statute and IRS Notice 2009-26 is that the bonds cannot be private activity bonds (IRC 141). This means that costs to support private interests (including non-profits) cannot be more than $13.8 million (the total of the fund equity used plus 10% of the bond proceeds). (Ed. note: “fund equity” refers to money the city puts in directly from local fund accounts, in this case the DDA TIF and parking funds.)

The project includes footings to support a 25 story building and other items designed to benefit a private development partner... The IRC 10% limit could easily be exceeded if a portion of the parking structure or the parking spaces themselves are leased to or otherwise benefit the developer.

The bond offering indicates the city will pay up to 8% interest on the bonds. The city will receive a federal tax credit for 35% of the coupon interest. As stated in the bond offering, failure to comply with the Build America Bond requirements “may cause loss of the Refundable Credit to be retroactive to the date of issuance of the Bonds.” The federal credit is worth nearly $20 million over the life of the bond. It would seem prudent to take every precaution that these bonds will not cross the line to become private activity bonds with $20 million at stake.

Questions:

1. Has the city calculated how much of the parking structure could be leased to a private business and still avoid classification of the bonds as private activity bonds? Will this information be included in the RFP for the library lot site?

2. The Council resolution authorizing these bonds includes a provision allowing the city to ask for a private letter ruling. Has the city applied for a private ruling? If the city has not applied for a private ruling, has the city asked bond counsel for an opinion on whether the bonds will qualify as Build America Bonds under specific fact situations that include any contemplated use of the parking structure by a private party under specific lease arrangements?

3. The Advisory Committee on Tax Exempt and Government Entities recommends that governments have procedures to monitor compliance with bond requirements during the life of the bonds, including advance review of contemplated sales, leases or other contractual arrangements involving bond-financed property. Does the city have such procedures? In the case of parking structure bonds, is the city or DDA staff responsible for compliance?

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Sidney never received a reply in writing, other than to say that the city was aware of the limit, though Crawford told her verbally that some permit parking assigned to the developer could be shifted to the Liberty Square (fully paid up) parking structure. She has since received estimates that indicate that total development subsidies (not including use of the parking spaces) are about $10.8 million. Those include the extra supports needed for a large building (which apparently cost about $5.3 million), and the construction of Library Lane. Additionally, the city is charging an administrative bond fee (that will be returned to the General Fund), that may be part of the limitation amount.

As the City Council contemplates the risk and expense to the city of financing a development above the Library Lot parking structure, this is just one more factor they will have to consider.