Killing the DDA // Eliot Singer

I’m sure the usual suspects do not want to place killing their beloved, functionally obsolete, DDA and BRA at the top of the budget cut list. I don’t know exactly how much can be saved through cuts to planning staff and city attorney, probably on the order of 4 positions and 25% city attorney time (based on recent billing records). Preventing further expenditures on discretionary projects and programs, for example, piggybacking road reconfiguration on the Project Formerly Known as City Center Two, will save a bundle.

The problem is how to kill the DDA, even if the usual suspects can be coerced into finally acting in the city’s financial interest. Remember DDAs were never supposed to last more than 20 years, which means by 2006, the DDA should have been ditched as either having served the purpose for which it was created or ditched for having had 20 years and failed. Also remember the DDA district, which encompasses the main downtown with the bulk of student bars, is paying for public safety at 1991 levels, when TIF District II was invented.

The deterrent to simply declaring the DDA has served its purpose and transferring its assets and debts to the city is the debts. By having turfed the bonds for the so-called Technology Innovation Center to MSU and LEAP (also avoiding further scrutiny and any objective assessment and accountability), the DDA bonds from TIF District II are down to what is left of the bonds for City Center I and the City Center II Evergreen bonds. The second 30-years of tax diversion for University Place is TIF # 1. Since, unlike for most brownfield projects, the state is not chipping in 24 school mils (it was for a while with University Place last time around) for DDA TIF, about half the tax diversion comes from the city, the rest from Ingham County, LCC, and CATA. (The usual suspects seem to believe diverting money from county, LCC, and CATA is free money, forgetting East Lansing residents do send kids to LCC, do use the bus, do use the ISD and other county services, voted for new taxes to bail out the county, and would probably prefer to see money spent on health care for the poor than subsidizing bars for college students.)

By keeping the DDA, there is also the DDA millage, which despite angering many property owners who do not benefit from it, does provide money to pay for downtown maintenance, a legitimate purpose, if it were used for that purpose (DDA millage was budgeted as $133,000 for FY 2018).

According to the tax increment revenue and debt service coverage for the 2015 refunding of the City Center I bonds, TIF # 2 is projected to provide insufficient diverted taxes to cover debt service on the two bonds from 2019-2025 (when the CC I bonds mature), starting at around $180,000 deficit, gradually decreasing with expectation of tax growth. The FY 2018 budget projected higher TIF # 2 than in the bond prospectus, which would mean less of a deficit.

This does not mean there is any reason to keep an active DDA, just a DDA that exists to collect revenue and pay bills. Like the Building Authority, a nominal DDA could meet once a year to approve a budget that reaffirmed existing obligations.

According to DDA law, any surplus DDA revenue must be returned to the taxing bodies (city, county, LCC, CATA). It does not appear there will be any surplus revenue, but with net operating revenue on the Evergreen properties or perhaps if they sell the properties (for a substantial loss) and receive new taxes on development of those properties and on the Project Formerly Known as CC II properties (by not offering any brownfield tax breaks), there could be future surplus revenue. It does seem clear, however, that the usual suspects would rather spend money on redundant staff and having the city attorney attend pointless meetings than give one penny back to Ingham County, LCC, or CATA.

Not to worry. A DDA is required to pay the municipality back for any money used to fund its deficits. DDA accounting is supposed to be at arms length. For many years, I and others have complained that accounting for development authorities has been placed in the hands of the planning department, where no one has an accounting background, rather than with the CPAs in the city finance department. (This was done deliberately by Staton.) This has meant the arms length that clearly shows money owed the city has not been done (which is also how the DDA has been able to get away with new projects while running in the red).

But the fact is, for many years the city has been paying for a large portion of downtown maintenance. It would take going back over past budgets, but I would estimate since taxable values plummeted with the recession, general fund subsidies for downtown maintenance have been at least $500,000.

Then, conveniently forgotten, in the TIF # 2 for City Center I, there was an obligation to pay 4.9% of the cost of that parking structure. I don’t know if that was done during the first few years, but it certainly has not been in any budgets going back to around 2006. This would be on the order of $50,000 per year of the debt service on those bonds.

So, the DDA owes the city close to $1.5 million, plus continued obligations. If it pays the city back, which it should be forced to do, there will be no surplus to return to the other taxing bodies for a very long time.

There is no financial reason to keep the DDA as anything but a nominal entity. There are other ways to promote downtown without further tax diversion and with advocacy for downtown in the hands of someone other than a handful of powerful property owners, including people from the neighborhoods and downtown shopkeepers and restauranteurs, not to be confused with their landlords. Some of us have said for years that East Lansing needs a chamber of commerce, not to be confused with the Greater Lansing Chamber, which is a lobbying group that mostly represents powerful special interests and is the proven enemy of homeowners. An East Lansing Chamber of mostly small businesses would do a much better job promoting downtown than city government (government took over this function as another part of Staton’s power grab) and could also take the lead in downtown events, so the city could stop funding these and they could still happen (this is how everywhere else does it).

Time for East Lansing to kill its DDA. It has caused far more harm than good over 30 years, not because DDAs necessarily cannot be an asset to a community if they know how to be part of the community, but because the East Lansing DDA does not.

 

Eliot Singer

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