SPECIAL STUDY SESSION OF THE COUNCIL OF THE CITY OF NOVI
THURSDAY, JANUARY 14, 1999, AT 7:30 PM
COUNCIL CHAMBERS-NOVI CIVIC CENTER-45175 W. TEN MILE ROAD
Mayor McLallen called the meeting to order at 7:35 p.m.
PLEDGE OF ALLEGIANCE
ROLL CALL: Mayor McLallen, Mayor ProTem Crawford, Council Members DeRoche, Kramer, Lorenzo, Mutch, Schmid
ALSO PRESENT: Jim Wahl, Khanh Pham, Heidi Hannan, Glenn Lemmon, Les Gibson
AUDIENCE PARTICIPATION - None
PURPOSE OF SPECIAL MEETING: Study Session on the proposed Downtown Development Authority (DDA)
Mayor McLallen stated the purpose of this study session is to develop a better understanding about the opportunities that may or may not be presented by a Downtown Development Authority (DDA). This meeting was originally scheduled for a public hearing but due to a newspaper publishing notice omission during the holidays, the actual formal public hearing is rescheduled for February 22, 1999.
1. Proposed Downtown Development Authority Presentation – Wahl & Hannan
Mr. Wahl began with the Grand River Corridor Study and advised this study has two purposes. The first is to identify ways Grand River Avenue could function more effectively as a principal traffic artery, but also to make it an attractive location for new businesses and industry in our community. In May of last year, Mr. Wahl advised Council and the Planning Commission met to discuss a plan that had been underway for two years. One of the conclusions of the study was to make sure the program was implemented. The second assignment given to staff, consultants and the property representatives of the Corridor was to develop an implementation program. He explained many options for funding sources, methods to formulate the project, and ways to fund the estimated $40 million needed for improvements were discussed. Mr. Wahl stated a DDA was one option on the list. He said this is a widely accepted technique, method or strategy used by many communities in the state. The DDA Board would help to expedite the development.
Mr. Wahl also addressed the undeveloped sections of the plan. He explained they had remastered the plan on numerous occasions in hopes that there were zoning and planning solutions to solve the problem. The conclusion was to find a comprehensive plan for the entire area instead of private development coming in at smaller levels. This would be one of the functions the DDA could focus on. With this strategy it would not be piecemealed, but coordinated and assembled like Farmington Hills was able to do with their Twelve Mile Road development. Mr. Wahl asked Mr. Pham to highlight some of the features of a DDA.
Khanh Pham explained the boundaries of DDA are south of I-96, east of Beck Road and everything west of Meadowbrook. He provided a visual presentation of the Grand River Corridor and the parcels so Council could get a better understanding about what the district entails. He introduced Ms. Hannan and stated she will explain the process and procedures of creating a DDA.
Heidi Hannan stated as the staff and consultants looked at this district, they used three tests to determine whether this district would qualify as a DDA according to Public Act 197. One tests would be that the character of the district must be primarily a business district. She explained the district in question is about 94% commercial or business in nature, so they feel they have passed that test. The next test is that the district needs to qualify as a downtown area. Ms. Hannan reported they believe the Grand River Corridor and the central location of the district does represent a downtown for Novi. She continued by stating even though Novi does not have a traditional downtown, there is a central location for retail and commercial activity with the Towne Center, Main Street and Expo Center. Lastly, Ms. Hannan advised that they need to confirm there is deterioration in the district. Based on preliminary numbers gathered, Ms. Hannan reported it was determined there are approximately eighteen properties within the district that are declining in taxable value. Ms. Hannan said they have been working with their consultants on the numbers to get a better understanding of the district.
Ms. Hannan reported there are also some actions that need to be taken if there is interest in pursuing this option. On January 11, 1999 Council passed a resolution to set a public hearing for the DDA and that public hearing is set for Monday, February 22, 1999. Ms. Hannan reported this will provide an opportunity for the community to express their views and concerns. Ms. Hannan continued by stating if Council determines they are ready to go forward with this option, staff would then bring forward a proposed ordinance. This ordinance would create a DDA District and Board, establish a Downtown Development Authority and if approved, it would move forward for a second reading. Ms. Hannan further advised if the ordinance is approved, it would then be filed with the Secretary of State. Ms. Hannan stated the Mayor and Council would then appoint a Downtown Development Authority Board consisting of eight to twelve people with the majority of members having an interest in the district. Once the Board was established they would need to set up a resolution to adopt a development plan. They then must take the development plan to Council and ask the Council to set a public hearing regarding the plan. Later, Council would schedule a meeting with the Board and other taxing jurisdictions within the district to review the plan and discuss it. There would be another public hearing to look at the plan itself along with the tax increments and financing plan. Ms. Hannan explained to adopt a DDA plan and a tax increment-financing plan, they must first draft an ordinance to adopt the plan. She explained there would then be two readings for this purpose. Ms. Hannan reported the public hearing will be an important step to see what the community feels about the entire process.
2. General Fund Impact - Pham
Mr. Pham explained he would only present conceptual figures because exact figures would not be available until they are further into the process. He started his presentation by explaining what a DDA does. Mr. Pham reported a DDA typically establishes a base year. He explained the DDA then captures revenue from any growth or expansion from that base year. Mr. Pham provided a visual presentation to Council to explain how 1998 (year zero) represents the base year. Mr. Pham reported raw numbers were determined in terms of residential, commercial and industrial property, and noted there is a $115,000.00 taxable value in the district. He added the general amount of $25M across the board is consistent because they believe someday personal property may be eliminated. Mr. Pham reported the total amounts to $128M in the district and that number reflects the base year. Mr. Pham advised if they consider 1999, which is year one, they assume the residential property will grow. He went on to say the charts only reflect a forecast of approximately a ½% , 2½% or 3% growth. Further, he advised the numbers are conservative and they used these numbers because they did not want to give a false sense of strength of the revenue that could be generated by this mechanism. Mr. Pham reported by using the base year and subtracting year one there is a difference of $2M and that is the amount with which the DDA can levy their millages.
Mayor McLallen understands the $2M is not income, but what the general fund millages would be levied against.
Mr. Pham explained the city currently levies about 10 mils, but noted at this point they levy only 8 mils. He advised if they multiply 8 mils by $2M, the DDA redirects $22,000 in revenue from the city to the DDA funds. Mr. Pham reported because of the function of the DDA, they also can capture the county (4.8 mils) and Oakland Community College (1.6 mils). Mr. Pham noted if they total these mils and multiply them by $2M it will result in $40,000 for the first year. Mr. Pham emphasized these are only forecasted estimated numbers. He then reviewed the figures again using the charts for the second year as an example and noted the table is available for viewing at the Novi Public Library for all interested parties.
Mr. Pham said Council and citizens have asked whether the city can capture the entire amount. He used several charts to demonstrate what the city would actually receive and noted the DDA would receive any growth or difference. He advised the city usually levies 10 mils and broke the amounts out from the 1998 millages. Mr. Pham reported the General Fund amounts to 4.12, 1.5 is the dedicated millages for the Police and Fire, 0.4 is dedicated to Park and Recreation, 0.8 is for Novi Public Library, 0.6 Street, 0.6 for Drains and 2.5 for Debt Services. Mr. Pham advised the DDA captures millage and it would not make sense to capture debts where it would affect the city’s ability to pay for its bonds or any debts they would try to retire. Consequently, Mr. Pham advised that amount is removed and is how they determined the 8.23 or 8.25 mils for the DDA.
Mr. Pham gave an example how funds can be redirected to the DDA He said some people questioned how it might effect the General Fund and the overall operation of the city. He explained it is believed even though there is redirection of future revenues to the DDA if it is successful, there are still developments outside the DDA district. He further explained if it becomes a DDA district and there is potential growth, the city cannot capture revenue in terms of future growth. Mr. Pham believes last years rezoning of about 1,000 acres to OST has increased growth in several areas. He reported the city levies 10.7576 mils but 2.5 is the debt and the DDA will not capture that 2.5 or whatever debt service there may be. Further, Mr. Pham explained within the DDA it will be offset by any further development and there will be a significant impact on the General Fund.
3. Questions and Discussion
Councilman Kramer asked for further clarification about debt service. He understands debt service changes over time and they should expect to be able to subtract debt service annually. Mr. Pham agreed and noted they will not collect debt service during any year.
Councilman Kramer understands whatever the debt mileage is for each year would come off the applied amount to the DDA property; Mr. Pham agreed.
Councilwoman Lorenzo pointed out new development, sales or substantial rehabilitation projects are not reflected within the amounts. She noted property on the north side within the boundaries between Taft and Beck Roads is zoned as OST. Mr. Pham disagreed and advised all that property is not zoned as OST.
Councilwoman Lorenzo understands the only exception is a certain parcel on the corner and requested further verification about which parcels are zoned as OST.
Mr. Pham asked whether she was referring to the area above I-96. Councilwoman Lorenzo replied she was referring to the north side of Grand River. Mr. Pham confirmed it is included because it is zoned as OST.
Mr. Pham advised they are not projecting future growth in terms more than 3% or 2½%; Councilwoman Lorenzo understands.
Mr. Pham reported they cannot assume OST will grow like other districts. He explained a conservative forecast was considered because if the economy starts to decline, no one would be banking on these numbers to be as high as they are.
Councilwoman Lorenzo understands that OST generates about the highest tax revenue for a city; Mr. Pham agreed.
Councilwoman Lorenzo understands if all the property were developed as OST, the tax revenue would be high and much higher than it is now; Mr. Pham agreed.
Councilwoman Lorenzo’ s concern is they are capturing all the new growth in the DDA, so the General Fund and all the other funds are not benefiting from OST development. Mr. Pham agreed, but restated they are offsetting the difference. He cannot say because of the Haggerty Corridor, the development will have a higher value. He is just talking about the most available acreages to be developed and how they can offset the capture of revenues in the DDA. He explained the growth available in the district would be offset by any and all future OST developments on the Haggerty Corridor.
Councilwoman Lorenzo stated no one can predict what time in the future all the additional OST around the outside of another area will be developed. She noted the Grand River Corridor has not showed the growth that was anticipated and they do not know how quickly the balance of the OST property will develop. Councilwoman Lorenzo restated her concern is that they have always thought of OST as one of the big benefits of bringing more tax dollars to the city; particularly into the General Fund so it could be distributed across the city in various ways. She understands now it is being said they are going to capture funds for one particular area. She feels the numbers are not stable in terms of the accuracy of the assessments at this point in time. Again she does not like capturing of funds for the one area when improvements are needed throughout the city. She is not convinced that General Fund dollars should be captured for one specific area or for private property.
Mr. Pham restated the DDA will capture 8 mils from the city along with 4.8 from the County and 1.6 from Oakland Community College; these funds are not available without the establishment of the DDA
Councilwoman Lorenzo understands the money would be available to this specific district for improvements to this specific area. She further understands these funds would not be available for completing parks in the city, they would not be available for purchasing new snowplows or for adding personnel. Councilwoman Lorenzo believes all of these items are needs the citizen’s say they want to se met and these dollars would not be available for those purposes. She does not the think the best interest of the public is being served by capturing money for private property in this specific area. She feels the best interest of the public is best served by completing parks, buying snowplows, adding personnel and adding to the Drain Fund. Councilwoman Lorenzo believes it is all the city services that the citizens of Novi benefit from.
Councilwoman Lorenzo agreed it is in the best interest for the public to halt property value deterioration and increase tax evaluation where possible in the business district to eliminate the causes of such deterioration and to promote economic growth.
Mr. Wahl explained if other development occurs that was not known about or they had not envisioned, that additional revenue does not just go to the DDA district. He explained unanticipated revenue could go to the General Fund. The DDA does not have to capture 100% and success in the district could benefit the entire community.
Councilwoman Lorenzo again stated she is having a hard time with capturing funds for one area only. She can not see how the city can do this when they have not appropriated the funds to take care of the city’s municipal buildings. Again she does not see how it would benefit the community to take care of private property when improvements to the city buildings need to be recognized along with other needs for the citizens.
Mayor McLallen stated this is not subsidization of private property; this is reallocating of potential resources the city would probably have to spend in some form or fashion in a specific area. The Mayor explained the DDA could buy plows for the district or provide road improvements so the city would not have to use the General Fund. She does not want the conception of a DDA to be that it a subsidy for private business. She continued by stating revenue generated in the district will accelerate money to spend in this district on public projects or needs.
Mr. Pham advised public road improvements would also have to be made and noted the county has committed to improvements on Grand River between Wixom and Beck Roads. However, Mr. Pham added the city must contribute 10%. Mr. Pham continued by stating although the city must pay its share in road improvements, if the DDA is in effect and if enough revenue could be captured, it could be allocated to pay for that share of Grand River Corridor because it would be considered to be a public right-of-way improvement.
Councilwoman Lorenzo questioned whether the DDA could fund streetscape improvements in residential subdivisions. Mr. Pham replied no because it is not in the boundary of the DDA
Councilwoman Lorenzo stated that is exactly her point.
Councilwoman Lorenzo restated because money will be taken from the General Fund and transferred to a particular area for particular businesses in that area, she cannot see how this cannot be called subsidization.
Mayor McLallen directed Councilwoman Lorenzo to relinquish the floor so other member’s could express their opinions and formulate a pool of information.
Councilwoman Lorenzo objected for the record.
Councilman DeRoche would like clarification on the figures and amounts quoted. Ms. Hannan replied the amount of revenue is distributed in a manner so that a certain portion from the county and a portion from Oakland Community College is taken and then directed.
Councilman DeRoche understands the tax revenues along with the General Funds and proposed growths would not bare the full brunt and that this process would actually lessen the county and community college General Funds. Mr. Pham agreed and explained if a DDA were successful there would be no new taxes to the district.
Councilman DeRoche understands if the DDA is put into place they would not just begin making road improvements and putting up lights. Mr. Pham agreed and added it is a gradual process.
Councilman DeRoche asked what needs to be done to move this plan forward and asked for a further explanation on the example given about the growth projections. Mr. Pham restated the Tax Increment Financing process.
Councilman DeRoche asked what would the city expect the DDA to do for the district within the first year. Mr. Pham explained the DDA Board would write and prioritize a plan. He believes it would be hard to conceptualize the plan using the $40,000 example.
Councilman DeRoche realizes it takes a large amount of money to implement this project. He then asked whether this would be a bond issue that would go before Council or the voters, or would they accumulate money year to year until they have enough money.
Mr. Wahl described the TIFA Bond Issue process, and noted there are persons who know how to implement a bond issue and how to retire a bond.
Councilman Schmid is concerned about why the Grand River Corridor has not developed over the years. He feels the zoning has not been conducive and perhaps with proper zoning, the development problems could be solved. He then suggested Grand River may be overpriced. Councilman Schmid restated with the proper zoning it could make the area more appealing.
Councilman Schmid stated would also like a clearer understanding about the type of revenue to be generated before he could vote. Councilman Schmid asked whether the DDA monies collected could be cut back and given to the General Fund. He restated he would like further clarification about what the money is going to be used for and he believes it goes beyond the purchase of right-of-ways.
Councilman Schmid also thinks the project is too big and he is not sure whether it is necessary to go as far west to Beck Road or to Meadowbrook Road to identify the really depressed areas. He believes there are probably depressed areas near Beck and Meadowbrook Roads. He added he believes these types of projects generate activity and in the long run they are a great benefit.
Councilman Schmid believes although the city cannot assume development along Grand River will move forward on its own, he wonders if a DDA the right answer. Further, Councilman Schmid understands Farmington Hills’ DDA was developed through grants, bonding or another method. Councilman Schmid added he has always believed that Novi should build a city where they would not have to continually increase taxes. He explained Novi’s development should keep pace with the market so they do not have to go back to the community for additional tax dollars. He continued by stating although Novi has been fairly consistent with keeping pace, they have gotten criticism for it also. Councilman Schmid further stated although the city has had special bonding issues, their tax base has not been raised in years. Because of Councilman Schmid’s concerns, he would not be ready to commit that amount of money to this particular area if this project could move forward without a DDA.
Councilwoman Mutch wanted to distinguish between the true tax and the assessed millage because she understands the assessment does not change. She then asked if they could determine whether the tax revenues from the Grand River Development would be more than the current revenues. Further, Councilwoman Mutch asked what measures can be taken to determine what can work or fail. She understands if there is a particular investment, their chances are more favorable for success. She then suggested that the properties could increase in value without any help from development.
Councilwoman Mutch asked what is the impact of properties not in the DDA? She understands this kind of project is designed to encourage development that may not occur as quickly as other kinds of development, but she assumes there would be benefits for the entire community.
Councilwoman Mutch is concerned about the capture of dedicated millages and noted they are currently funding programs like Parks and Recreation and Public Safety that have been planned over a long period of time. She continued by stating when a DDA is created, she questions whether there are any terms or restrictions on the development that takes place within the district that could be seen as a benefit of creating the district. Councilwoman Mutch again asked whether there are any restrictions on the development that would encourage a unified Grand River Corridor as an example.
Mr. Pham pointed out the development would have to meet a higher level of standard that already exists in that particular area. He continued by stating if the DDA were created, there would have to be discussion in regard to giving the DDA authoritative power. Mr. Pham advised they would then ask Council to direct them to prepare a Grand River overlay similar to the one prepared for the Towne Center District. Mr. Pham
noted just by statute that a zoning ordinance can regulate a certain type and standard for street amenities or design. Mr. Pham understands this could be accomplished without a DDA, but a DDA would compliment the development once it is in place. Mr. Pham added the DDA would have authority unlike the other developments in the city that only have the zoning ordinance.
Councilwoman Mutch understands the DDA would benefit the property owners because their property becomes more attractive due to the tax situation and because of the attention the area would receive as a result of this kind of development. She restated although the private property owners would benefit, the community as a whole would also benefit from the revenue derived from development.
Mr. Wahl reminded Council tonight’s meeting is a conceptual discussion about how to insure continuity of design throughout a district where there are different zoning classifications (industrial, office and TC). Mr. Wahl added this is an overlay with respect to the design of the amenities and how they might look. Mr. Wahl stressed the consistency aspect rather than focusing on the perception they are adding more requirements that do not exist anywhere else.
Councilwoman Mutch does believe anyone should be apprehensive because currently there are properties undeveloped or not selling. She does not believe a property would suddenly become more saleable just because there might be new requirements on the property. Further, Councilwoman Mutch could agree with the idea of the DDA, but only if the benefit for the city as a whole is at least equal to the degree it would benefit private property owners. She restated she not see anything inappropriate if other people benefit as long as the city benefits equally.
Councilman Kramer stated this issue seems to date back to the study of Grand River when the seed was planted for Main Street. Councilman Kramer believes it stands to reason this development will encourage the growth up and down Grand River. Mr. Kramer continued by stating although a five lane Grand River might be the only road to support intensive use, he believes the road will not experience intensive use because of the surrounding environment. Further, Councilman Kramer believes if they support the concept then a part of that concept would be the preparation of a Grand River overlay district. He also believes they want to encourage a Main Street type development with all the buildings that would be constructed.
In terms of development moving forward without the DDA, Councilman Kramer believes the city would then incur the liability to improve the corridor. He reminded Council the DDA would give them access to a non-tax-supported millage. He further reminded Council they had asked Administration to seek other means of funding. Councilman Kramer said this provides some non-citizen tax supported ways to do more than they could do otherwise. He continued by stating the conservative picture that has been portrayed about the DDA is the result of trying to determine whether it is feasible and supportable. Councilman Kramer did not believe there was flexibility in the definition of the DDA in terms of percent captured. However, he believes if it is a manageable tool by the city and Council in terms of year by year, then what percent captured can be assigned to the DDA. Councilman Kramer believes the city needs to know when and how it can be adjusted and what the flexibility might be. Councilman Kramer continued by stating if the DDA proposed a bond issue based on a conservative picture, the income stream would support a certain amount of bonding. Further, he believes if the conservative picture agrees, then the income stream would pay it back. He then wondered if more monies were generated than expected, would there then be an option to put the money in the General Fund. Councilman Kramer agrees there needs to be more discussion and believes it comes down to a quality issue. He further agrees if they do not implement a DDA and do not get behind the planning and support it, the area might develop on its own over time. Further, Councilman Kramer is not interested in accelerating development, but would like to see the development move forward because it is more attractive. Councilman Kramer would like to provide the foundation which would provide quality development if it does not cost taxpayers a substantial amount of money. He also stated if Novi is setting an example for the development process, then this is a direction he would support investing a modest amount of money into. However, he added he would not support an amount that would burden the City.
Mayor ProTem Crawford said most his concerns and comments were already addressed by other Council members. However, Mayor ProTem Crawford referred to the closing comments expressed in Mr. Lemmon’s letter and he thought further discussion was warranted. He continued to say the letter referred to timing about when or if they develop a district , what base would they build from if there was to be a district, and that it could be drastically affected. Mayor ProTem Crawford stated he hoped Mr. Lemmon would address these issues. Mayor ProTem Crawford would also like a further explanation regarding Councilman Kramer’s question about whether it is possible to change the rate of capture throughout the life of the DDA.
Mayor McLallen suggested that it would be more appropriate for Mr. McGow, the bonding attorney to answer Mayor ProTem Crawford’s question.
Mayor McLallen believes the primary questions have been brought forward tonight and Council appears willing to become educated about the DDA process. However, she also believes Council still needs to learn more about a DDA’s true value so they are better informed to relay reliable information to the citizens. Mayor McLallen feels the primary concern has been about how a DDA will effect the General Fund. Further, the Mayor agrees Park and Recreation and Public Safety millages should be left out of the capture because there is a strong opinion that these funds have been set aside for a specific purpose. Mayor McLallen once again stressed the impact this might have on the General Fund. She would like further clarification about whether this is a redirection of funds or is the city’s General Fund losing something that they will not be able to recover in another way. She then asked where might the money really be spent and believes this was a concern shared by Council. She asked whether it is spent on things they would normally spend other funding on and is this then just a dedication of that funding? The Mayor also wanted to know about the specific benefits to the private sector that would be unavailable to other private sector areas in the city. Mayor McLallen then asked if they did not move forward with the DDA, would the positive economic climate the city has experienced continue? The Mayor further asked whether the economic development climate in the city has reached a point where this would happen in the private sector anyway? Mayor McLallen asked what could the DDA do to improve the development.? The Mayor then asked Mr. Gibson and Mr. Lemmon to step forward to address questions raised by Council Members in reference to the Mr. Lemmon’s letter to Mr. Gibson.
Glenn Lemmon stated his letter expressed some of his possible concerns in a worst case scenario. Mr. Lemmon continued by stating he believes all of the eighteen properties that are being sited for declining value have been the subject of Michigan Tax Tribunal Appeals. Mr. Lemmon reported because every property does not sell every year that as the City Assessor, he must estimate the value of every property each year. He advised sixteen thousand properties must be estimated for value each year. Mr. Lemmon continued to say because certain groups of properties (i.e., residential ) have many sales, those sales can be used for comparison. However, he explained the same is not true with commercial and industrial because those properties have fewer sales.
Mr. Lemmon reported the Tax Tribunal process begins in March during Board of Review. Mr. Lemmon continued by stating the property owner further appeals to the Michigan Tax Tribunal by providing reasons as to why they believe their assessment is too high. After this part of the process is completed, the city reviews their numbers and the property owner reviews their numbers. Rather than go to court, Mr. Lemmon advised they generally try to find some common ground and come to an equitable agreement. Mr. Lemmon reported many properties in the Grand River area have had repeals and reductions. However, Mr. Lemmon clarified the reduction is in assessed value, not market value. He further explained if a property were to sell and then later sell at a lesser value, then that is a reduction in value because this is a market change and is definable.
Mr. Lemmon reported when he prepares estimates on massive properties he may find they were over estimated and would require a reduction because not every property falls under certain criteria. Consequently, Mr. Lemmon reported there are some properties that are going to be over assessed and in those instances, he believes reductions were warranted. He went on to explain that does not mean there was a loss in value on the property and he is uncertain whether it is a good measure for reduction in assessor taxable value. He explained they are limited in increasing taxable values by the rate of inflation and CPI. Mr. Lemmon explained in terms of the CPI, there will not be any great gains in taxable value and thought the biggest gains would be realized with new construction. Over the past few years, Mr. Lemmon reported their department has been conducting reappraisals on all commercial and industrial properties. He explained these appraisals were a tool to get a better understanding about the property values. He continued to say the reassessment re-evaluation would be put in place for the year 1999. Mr. Lemmon restated he described the worst case scenario and he does not believe the city will be in a deficit position. However, he added he believed Mr. Gibson needed to be advised of this possible scenario.
Mayor McLallen asked whether Mr. Lemmon addressed Councilwoman Lorenzo’s question. Councilwoman Lorenzo advised he did, but she does not think they can say the property value is declining at this point in time.
Mr. Lemmon advised unless there are sales and resales that he is not aware of what would actually indicate there is a reduction.
Councilwoman Lorenzo asked whether there would be more information in the 1999 reappraisal? According to all the data he has, Mr. Lemmon advised he does not have any data that would indicate a loss of that nature. He asked if values are declining, who is going to buy the property. Mr. Lemmon said people usually hold onto property when it is declining in value until the value increases. In terms of where can the declining values be found, he believes they are not going to find enough sales and resales to define a declining area.
Mayor McLallen understands the only time property value is established is in the open market as properties change hands. Mayor McLallen believes part of the problem in this area is that most of the property has not changed hands in the last several years. Mayor McLallen said one of the questions before Council is whether it is appropriate for a property to change hands because the planning issues in that area have changed and the new zoning might make it more attractive. She continued by stating what if a property’s zoning was the issue that kept it from changing hands because of its effect on the value or is something else at work changing the value.
Mr. Pham responded to Mr. Lemmon’s comments by stating they are not actually reporting the property in terms of the sale value declining. Mr. Pham explained in the test of the DDA the benefit is not to look at the sale in terms of market value; it is to determine whether there is taxable value. Mr. Pham restated they are not required to verify the market value.
Mayor McLallen asked Mr. McGow to address Council’s concerns.
Mr. McGow believes the issue at this point is the directive found in the act that requires a city to prove there are deteriorating property values within the district. He said the act does not define deteriorating property values. He added people tend to look to what does an area have to show property values in the district. Mr. McGow said the standard method to determine this value is taken from the information found with the assessment rolls. He explained the assessment rolls are changed or modified annually to reflect what the true cash value of the property is in that year; that is the base for taxation. Mr. McGow said the other issue is market value, which is what someone is willing to pay for a piece of property and unfortunately that is unknown until a property changes owners. Consequently, Mr. McGow said the taxable value of a property is the only value available to review from year to year. He continued by stating the act does not address anything about what method to use, how many parcels are needed or how much is enough. Mr. McGow said these questions go before Council as to whether they should create a DDA for their community. Mr. McGow stated to create a DDA, Council should believe the district needs help to prevent the deterioration of values in the district and to promote economic growth and development. He continued by stating Council will make this determination in terms of whether or not they want to create a district with these boundaries. Mr. McGow said there is no real test to show how many parcels need to decline and why they are declining. He stated the act uses the term deterioration of property values and share the same definition as the term declining. Therefore, Mr. McGow explained people look at an overall district as deteriorating rather than as declining. Mr. McGow further explained there may also be some indication there are areas with environmental issues. He said maybe that is why a property has not changed hands or the property would decline in value if those problems had to be cleaned up. Mr. McGow said these are the factors a district may have when they determine deteriorating property values. Mr. McGow restated the community has to look at where the boundaries are and what type of district the city wants to have in terms of creating a DDA
Mayor McLallen asked what can DDA funds be spent on. She understands there will be a small amount of funds for several years at the beginning and this small amount might not accomplish any of the goals monetarily that are being spoken about for this area. Although the Mayor understands the amount will grow over the years, she question what they can do with the generated revenue.
Mr. McGow responded in the early years of the process, a plan is put in place to identify various projects where they can spend the money. Mr. McGow explained these are for public improvements and facilities. He reminded Council because these are tax dollars (general fund, county and community college), it cannot be used for private development. However, Mr. McGow noted the money can be used to pay for public facilities within the district. He said that includes a variety of things depending on what they want to accomplish (street improvements, sidewalks, street lights and water and sewer lines). Mr. McGow restated they need to create a plan to determine what needs to be done. He advised the money can be spent on anything for a public facility and noted some DDA’s have acquired property for public use. Mr. McGow stated ultimately everything they are paying for is a public facility.
In terms of legality, Mr. McGow reported a DDA can begin to issue bonds any time after it has been created. However, he added is a requirement to project what the tax increments are so the city will then issue the bonds payable primarily from the tax increment revenues but with the full faith and credit of the city pledged behind it. Mr. McGow said all they can do is project what amount of money is going to come into this district. He said what is generally recommended to communities looking to bond is to wait a few years to see how those projections materialize and is when they evaluate whether they can issue bonds.
Mr. McGow advised Council that the money in the early years can be spent on planning purposes relating to the DDA or it can be put aside in a project fund to be used once enough cash is accumulated. Mr. McGow continued to say DDA’s do not have to issue bonds. He explained there are many DDA’s in the state that wait to see what they get each year. Mr. McGow advised that money is then put into an account to either save it for a future project or they can spend it each year. Mr. McGow reported most DDA’s issue bonds once they have a good idea as to what they feel comfortable with in terms of projecting debt service and future growth.
Mayor McLallen asked whether the money set aside could be invested into a growth fund. Mr. McGow replied it could be invested in the same manner as any other public fund.
Mayor McLallen understands as they wait for more funds to come in, they could wisely invest the money they have to hopefully capture additional dollars; Mr. McGow agreed.
Councilman Schmid asked what percent of the money goes into a DDA once it is established and further asked whether the percentage of dollars could be changed. Mr. McGow replied it could be changed in two ways. He explained the first option is with the development plan when they identify what the money is going to be used for. Mr. McGow said the original intent of most plans is to capture 100%. However, he noted the DDA plan can be amended at any time by going through the same process when the DDA plan was originally created. However, he noted this requires the DDA to come back before Council with a plan amendment for approval. Mr. McGow advised the second option can be considered annually through the budget. He explained the DDA is required to prepare an annual budget indicating how it plans to spend the money and that budget must be approved by City Council.
Mr. McGow continued to say Council is involved in the process each year as they review a report prepared by the DDA that reflects how much money they received and what they plan to spend it on. Mr. McGow explained the DDA Act requires that any surplus tax increment revenues must be returned proportionately to the taxing units it was captured from. He explained if it is decided in that year a certain amount is going to be returned, it does not all go into back the General Fund; it goes back to the units as it was captured.
Councilman Schmid asked whether they could take dedicated millages? Mr. McGow said as a legal matter the DDA can determine what millages or what percentages it wants to capture. Mr. McGow said legally certain millages can be excluded and most DDA exclude debt millage. However, he explained if Council adopts an ordinance, the other taxing units of the county and community college have the authority to opt out if they exclude for example, the library millage.
Councilman Schmid understands Lyon Township just went before the county for a DDA and were rejected because of the size of the project. Councilman Schmid asked Mr. McGow to describe the kinds of projects he has been involved with in terms of size and amount of dollars. Mr. McGow replied before 1994, the other taxing units did not have any authority over what a city did with their DDA in terms of its size or whether they chose to participate. He explained as part of the School Finance Reform Legislation in 1994 a provision was added that read said when creating a DDA a city must wait sixty days to hold a public hearing so the other taxing units can decide whether they want to participate; they might opt out 100% or decide to participate. He continued by stating he the taxing units would look at what percentage of that money is going to be capture and economically it comes down to how much money is going to be in the district and unavailable.
Councilwoman Mutch understands the amount of capture could be changed; Mr. McGow agreed.
Councilwoman Mutch understands if some money was to be returned it would be returned proportionately.
Councilwoman Mutch wanted further clarification about whether the county and community college can opt out in the beginning or after the amendments. Mr. McGow said they could not opt out at that time. He explained the only time the opt out right in effect is at the time the district is created or if they were later to amend the boundaries of the district to expand it to include new territory. Mr. McGow noted that opt out would only apply to that new territory.
In terms of amendments, Councilwoman Mutch asked whether the amount can be increased and decreased. Mr. McGow replied they could amend the DDA in either direction, but reminded Council they would have to go through the same process to amend it.
Councilwoman Mutch understands if the amount were to go down it would have to appear within the original act. Mr. McGow said many places and people in this process do not necessarily include it in the plan. He went on to say it is something Council communicates to the DDA when they prepare the annual budgets. He explained it could be determined on annual basis rather than appearing it in the plan and that it could work well either way.
Based on his experience and knowledge of DDA’s, Councilwoman Mutch asked Mr. McGow whether there is a minimum on the taxable revenue size that would make a district viable or not. Mr. McGow replied the issue comes down to what they want to do with the district. He said the reason there are many DDA’ s in the state is because it is a unique tool used by communities to get more money pooled together for projects within the district then they otherwise would have at their disposal. He said it is a way for all the taxing units to benefit when there is growth and development. Mr. McGow explained these acts were written was to allow the DDA’s to take advantage of the ability to capture from other taxing units. Mr. McGow believes communities view this as a means of getting additional resources for projects.
Denny Neiman arrived at 9:30pm.
In terms of declining values or revenues, Councilwoman Mutch understands normally DDA’s, depict a stable community with a pocket of deteriorating properties for whatever reason. Concilwoman Mutch said Novi is a developing community and she understood in a developing community, deteriorating values may be more of a reference to a slower rate of growth in those revenues for that particular area. Mr. McGow did not say that and reminded Council he had initially stated it is a factual determination for the Council to look at the whole area at large. He continued by stating, based upon assessment records and what they know, they must determine whether or not they have that. Mr. McGow reported according to the information they received from the assessment records there were eighteen properties with declining values, but 34% of the properties had stagnant values.
Councilwoman Mutch understands a stagnant value may be a deteriorating situation because everything else is increasing. She continued by stating the property is not bringing in the projected revenues in terms of tax revenues that they would expect in Novi. Under the broad definition given by Mr. McGow, Councilwoman Mutch asked whether this would be one of those situations they would consider deteriorating? Mr. McGow replied that could be a factor in their determination. However, he believes it is best to look at actual declining values.
Councilwoman Mutch understands they cannot provide market values for properties that do not sell. Mr. McGow agreed and added that is why people look at what the taxable value is over a period of years.
Councilwoman Mutch believes if they look at the taxable value and through the determination of the tax tribunal someone is over assessed, that is not an actually declining value. She believes it is a resetting of the assessment. Mr. McGow did not fully agree. He believes those people that appeal their assessments believe that they are being assessed at too high a rate.
Councilwoman Mutch believes if a homeowner’s tax assessment were decreased that would not mean they would be paying less in taxes in 1999 than they did in 1998. Mr. McGow disagreed and explained if there were a decrease, the taxes would be less.
Councilwoman Mutch disagreed and explained if the tax bill in 1998 was $1,000 and then it increases to $1,100 and the homeowner has reduced it back to $1,000, that does mean the property has decreased in value.
Mr. McGow asked Mr. Pham to address the declining values in terms of what the decline represented.
Mr. Pham advised they did not look at whether there was a relative stagnant increase and explained there was a physical decline in the eighteen properties listed. Mr. Pham continued by stating the declining eighteen properties resulted from a decision made by the Michigan Tax Tribunal.
Councilwoman Mutch asked whether the final assessment was less than the year before? Mr. Pham replied that dollar amount is lower than the year before. Then Councilwoman Mutch understands they truly are declining.
Councilman Schmid stated they have been lowered because someone asked that they be lowered. Mr. Pham replied that is not the question.
Mayor McLallen believes the question is about whether the revenue is declining or is the actual value in market of the property declining. She understands it is the revenue that is declining.
Councilman DeRoche understands Council has the option to revisit this to amend it as they see fit. He continued by stating if any bonds are issued that are being paid for by this tax increment finance or DDA, that the bonds are being paid for with approximately 56% of the city’s money as opposed to 100%. Mr. McGow agreed.
Councilman DeRoche understands if the city chooses to dedicate $10M in improvements and make this a Downtown Development Authority, then the bonds are being paid for with revenues captured from other governmental functions; Mr. McGow agreed.
Councilman DeRoche further understands Council does not relinquish any of their rights as a Council. Mr. McGow advised Council would not be able to abolish the DDA until provisions have been made for payment of the bonds in full.
Councilman DeRoche understands the city would have been responsible for this technically anyway; Mr. McGow agreed. Mr. McGow restated if Council wanted to terminate the DDA, they must first put money into an escrow to pay off those bonds.
Councilman DeRoche understands that would only get them back to a situation where they would have been if they just chose the bond for this project in the first place. Mr. McGow disagreed and explained up until that point they were capturing and using the tax revenues from the other taxing units in order to pay those.
Councilman DeRoche is aware of that and that is a perceived advantage to him. However, he noted the DDA has a statutory advantage that the state is permitting them to weigh. He continued by stating he has not heard any significant objection to a DDA except that the process may be extended because it must be run with a board if Council maintains the control that has been suggested tonight.
Mr. McGow believes the disadvantage is that money is diverted from the General Fund into the DDA. However, he added that is balanced by the fact that other money comes in.
Councilman DeRoche believes if they had paid for that anyway, the city would have been paying for it at 100% and it is possible that they would be unable to do it all in one bond issue. He explained another feature of the DDA is that it permits a city to issue bonds by pledging the full faith and credit of the city. He continued by stating the city would publish a notice of intent to issue bonds under the charter and the residents could have a referendum if they did not want the city to issue those bonds. Mr. McGow added if they did not have a DDA, they might be required to do it from a variety of other sources or they may have to vote for bonds for a specific project.
Councilman DeRoche understands if they want to move forward, they should consider taking advantage of what the state is providing as a method of subsidizing other tax funds.
Mr. McGow advised this act was created in 1975 as a way for cities to come up with matching funds for the projects they did not otherwise have the ability to do. He restated the benefit was the ability to take the captured revenues created by the development and collect it from all the taxing units so they could maximize the revenues able to pay for the project. However, Mr. McGow noted before the act changed in 1994 they were also able to capture taxes from the local school districts, intermediate school districts and the state in addition to capturing taxes from the city, county and community college.
Councilwoman Lorenzo asked how is a DDA terminated once it is created? Mr. McGow replied the DDA could be terminated at any time by a city council by ordinance once they determine that the DDA has fulfilled the purposes it was created for. Mr. McGow noted one caveat to that is if there are outstanding bonds; a provision must be made for payment of those bonds.
Mr. McGow reminded Council they are the entity that decides to create a DDA. He explained the Mayor makes the appointments to the board with the approval of the other Council members. Further, Mr. McGow restated Council also has an annual approval of the DDA’s budget and any plan amendment must also come before Council for approval under the public hearing process.
Mr. McGow advised Council also approves the original plan. He explained the DDA approves the plan by resolution, sends it to Council and Council then calls a public hearing; Council then decides whether they should adopt an ordinance to approve that plan.
Councilwoman Lorenzo referred to the brochure and noted it states that a DDA can acquire property, improve land, construct, fix, reconstruct, rehabilitate and preserve buildings. She then asked whether the DDA can only do those things with property the city has acquired or can they also provide these improvements to private property? Mr. McGow restated the DDA is able to spend money for public facilities and public improvements. He continued by stating they cannot take tax dollars for improvements to a private building.
Councilwoman Lorenzo understands any of the property that the DDA revenues can be used for must be public owned property. In terms of environmental clean up issues, Mr. McGow advised the Brownfield Authority is authorized to use money on private property. However, he continued by restating the DDA is only authorized to fund public improvements. He explained public improvements are defined in the act. However, he noted there is one type of improvement on private property that the state has legislatively said can be used with the money and that is for handicap or access facilities.
Councilwoman Lorenzo asked how does the act define public facilities? Mr. McGow read; "A street, plaza, pedestrian mall and any improvements to a street plaza or pedestrian mall including street furniture and beautification, park, parking facility, recreational facility, right-of-way, structure, water way, bridge, lake, pond, canal, utility line or pipe, building and access routes to any of the foregoing designed and dedicated to use by the public generally or used by a public agency. Public facility includes an improvement to a facility used by the public or a public facility as those terms are defined in Act 1 of 1966 which improvement is made to comply with the barrier free design requirements of the State Construction Code."
Councilwoman Lorenzo asked whether they could apply that to any building the public can enter? Mr. McGow replied the DDA could only fund barrier free design for that facility. He explained they could not fund façade improvements on a private building.
Councilwoman Lorenzo understands the DDA could fund an improvement to a sidewalk, a streetlight, or a public amenity in the specific area; Mr. McGow agreed.
In regard to the eighteen properties, Councilwoman Lorenzo understands the assessor’s report does not say values are declining; it means the property owners contend the properties are over assessed and that they do not reflect the market value. Mr. McGow believes the issue to be determined is the property values and property values are based upon the tax roll. He continued by stating market value is something that only is useful if a property sells.
Councilwoman Lorenzo understands that, but she also understands that the property owners are saying the assessments do not reflect the market value. Mr. McGow replied they are saying the property is worth less than the city is telling them it is worth. He continued by stating the assessment roll reflects and makes those changes each year.
Councilwoman Lorenzo understands that reflects the assessment, but it does not reflect what the property may sell for. Mr. McGow stated that is not what the basis of the tax roll is for.
Councilwoman Lorenzo understands that, but she also understands Mr. Lemmon’s report indicates that values may not be declining but that the property owners are contending their properties are currently over assessed.
In terms of the criteria to create the DDA in regard to deterioration, Councilwoman Lorenzo stated it seems to lack a true definition of deterioration because the language is vague and arbitrary.
Mr. McGow advised the establishing of the DDA is a policy matter and a decision made by Council when looking at the record and what has been presented. He does not believe it is arbitrary and restated he believes it is a policy decision based upon the facts presented to Council.
Councilwoman Lorenzo believes this is a large area and she questions whether they can legitimately call that area a downtown.
Mayor McLallen believes they have covered much information and she believes more information is necessary at their next meeting about the following:
Mayor McLallen reminded Council their goal is to balance all of the city’s needs.
Mr. Dixon advised he owns three parcels (017,026, and 031) and lost a potential sale to Ford Motor Company when the zoning changed from Industrial to OS-2.
Mayor McLallen closed Audience Participation.
Ms. Hannan thanked Council for giving them the opportunity to bring this issue forward. Further, she emphasized they are being very cautious and they have listened closely to Mr. Lemmon’s concerns and will continue to work with him. More important, Ms. Hannan advised they have slowed down their schedule and do not intend to meet the proposed 1998 date.
Councilman Schmid would like some assurance as to the viability of this project and before they go further, he believes they should have a full understanding on whether the other entities are going to accept a DDA of this scope and size.
Mr. Pham advised when they spoke with the county, they indicated they would participate to the level of other jurisdictions. Further, he advised they have also met with Oakland Community College and a letter from them indicates that they will participate in the DDA. Mr. Pham added they have also spoken with the Huron Clinton Metro Park and they have never opted out.
Councilman Schmid suggested they do further research in this area.
Mayor McLallen thanked staff for their presentation and believes they will come to a clearer understanding about whether this will become a public policy before the February 22, 1999 meeting.
In terms of protocol, Councilwoman Lorenzo asked whether the ad-hoc committee should have first come before Council to further explore a DDA before expending all of the staff and consultant time on this issue.
Mayor McLallen understood this was a Council directive and the expenditure of funds for Beckett & Rader’s services was funded under their original contract. She continued by stating from that discussion, Council made the request for this matter to come forward.
Mr. Wahl advised they received direction from a joint meeting in May from Council to pursue consideration of an implementation strategy for the Grand River Corridor. He continued by stating as part of that, they were to investigate any and all opportunities within that assignment and they quickly recognized that a DDA was the most opportunistic, but would require further research.
Councilwoman Lorenzo believes once they identified a DDA as a possible component and that it would take much staff time, the ad-hoc committee should have come forward at that time.
Mr. Wahl replied this was one of many directives given to their department and he did not consider it to be outside of their regular scope of work.
There being no further business before City Council, the meeting was adjourned at 10:10 p.m.
Kathleen S. McLallen Tonni L. Bartholomew
Assisted by Barbara Holmes
Date Approved: February 1, 1999