Nickel Back Not Enough

February 1, 2008
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GRAND RAPIDS — When the Business Journal asked Kent County’s fiscal services director why county commissioners would turn down a 5 percent property-tax rebate from the Grand Rapids Downtown Development Authority, Robert White pulled a nickel from his pants pocket and dropped it on a table.

Without saying more than “It’s a nickel,” White made his point.

His point was that the county would have to give up 95 cents of every property-tax dollar it feels entitled to in the new DDA tax-capturing districts in order to collect each nickel. So by not letting the DDA capture any of its property-tax and millage revenue from improvements that are yet to be made in those areas — upgrades that could turn out to be substantial and result in more tax revenue — commissioners guaranteed the county will get 100 cents of every new dollar that is generated on those blocks in the future.

But other issues also entered into the commissioners’ decision to opt out. Some board members weren’t convinced the city would remain committed to its rebate plan, while others didn’t think there was much trust between the two units.

DDA Executive Director Jay Fowler chose not to comment about the trust issue. But he did say that it isn’t uncommon for two governing units, like the city and the county, to have a few stressful moments.

“As I read about other cities, I think there is often some tension between cities and counties — that’s not unusual. But in this particular case, I think the city and the county work together on a great many things, and this is one where we have to agree to disagree,” he said.

“Some of the (county) commissioners talked about having different missions. They have their mission and we have ours, and they aren’t perfectly aligned.”

As for the DDA refund program, which would eventually rebate 25 percent of a unit’s tax capture over 25 years, it was in the ordinance city commissioners approved in December and may re-approve in a few weeks. Fowler said the ordinance legally binds the DDA to the refund plan. He thought the doubt some county commissioners expressed about the refund might be due to a concern that city commissioners could amend the ordinance and remove or reduce the refund at some point over the life of the 25-year plan.

“The DDA could not change it without going through the whole process of amending the DDA’s plan, including the public hearings and all of that — and including an official meeting at which we would invite the county to attend. Then the city would have to amend the ordinance to take that out,” he said.

“But we have also told the county that we are willing to enter into a binding agreement in regards to the ratchet-back. We have told Bob White and (Kent County Administrator and Controller) Daryl Delabbio that.”

Fowler said the DDA made that offer months before county commissioners voted not to let the city agency capture county taxes in the new sectors.

There is one situation, though, that could cancel or lessen the rebate program for a fiscal year. If the DDA doesn’t capture enough revenue from the district’s school tax to cover its debt obligations for Van Andel Arena and the parking ramp that the board built for the public museum, then revenue would be taken from the property-tax fund to fill a shortfall. Any refund reduction would be proportional to the millage of each participating jurisdiction.

But so far the DDA hasn’t had to use property taxes because the revenue the board has captured from the school tax has covered the bond payments. The revenue that has been collected from the school tax, in fact, has surpassed the payments, and the DDA has rebated the excess to the schools. This past fiscal year, the board returned $137,000 to the schools and expects to return $186,000 at the end of this fiscal year on June 30.

Fowler said refunding a portion of the local property-tax capture doesn’t alter the DDA’s commitment to the arena’s bondholders, even though the agreement requires the board to pledge 100 percent of its local property-tax capture to the debt service. The pledge serves as a security plan for bondholders in case there isn’t enough school-tax revenue in a given year to make the annual payment, which is roughly $5 million a year.

Fowler said the amended DDA ordinance keeps that pledge in place because a full refund only happens after the debt obligation is met.

“That’s why the plan amendment is key, because the pledge is still in place, if necessary, to make the bond payment,” he said.

Fowler also said it was a bit misleading the way some county commissioners referred to the DDA as being cash rich with a $12.8 million fund balance at the end of the year. He said the DDA has collected the tax-increment revenue for the year but hasn’t spent those dollars yet, and that circumstance could lead to a false impression of the board’s financial state.

“That may have been the fund balance at the end of December. But, for example, our bond payments are not due until the end of the fiscal year, and when those are made, our fund balance drops substantially. Furthermore, our priority plan shows when you carry out all of the projects that we have programmed, our available fund balance, within a very short time, will be down to about $1.5 million,” he said.

According to its current operating budget, the DDA will spend about $5.3 million on the arena and parking ramp debt and another $7.4 million will go to various downtown projects. Not all of those funds will come from the reserve, but the budget has at least $4.8 million of it being spent this fiscal year.

“So it isn’t that we’re just sitting on money,” said Fowler. “Instead, we’ve programmed various projects and we pay for them on a cash basis, which is in a lot of ways very similar to the county’s position of having a large fund balance that is reserved for this or that.”

Grand Rapids Community College also chose to opt out of the DDA expansion plan last week.

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