May 08, 2013 - "Dormant."
That's the state in which the Oxford Downtown Development Authority (DDA) could be placed for a few years in order to overcome its continuing tax revenue shortages and anticipated deficits.
"The only way you're going to solve the problem is (to) let this baby sit idle and let the cash flow come in naturally until they build some cash up," said Chuck Schneider, who owns multiple properties in the DDA district and used to serve on the authority's board of directors. "That's the bottom-line."
Schneider made this recommendation to the Oxford Village Council during a special meeting held April 30.
During this period of dormancy, the DDA would continue make its bond debt payments and pay the village for police and public works services in the downtown area, but it wouldn't generate any new expenditures or pay wages and benefits for any employees.
This would allow the DDA to save up enough money to once again become an active and viable entity at some point in the future.
"The only way you're going to solve this problem is you must control expenses," Schneider said. "The only way you're going to control expenses is you have to shut the operation down and let the $300,000 or $400,000 a year (in property tax revenue) flow in automatically. You did not cause the problem, but you need to solve the problem."
Schneider noted if a company he owned was in the same situation as the DDA, "that sucker would be shut down so fast it would make your head spin because I can't afford the juice."
"I can't afford the overhead, I can't afford the employees, I can't afford the expenses because I do not have the income to offset it," he continued. "It's deficit spending. It's reverse cash flow. It's negative cash flow. You don't run a business like that. You shut the sucker down and let the cash build up. It's as simple as that."
Council spent most of the meeting discussing the DDA's financial situation and potential ways to handle it for the 2013-14 fiscal year, which begins July 1. Council must approve a budget for the DDA nd the village by the end of May.
Council will hold a public hearing regard its proposed 2013-14 village budget, including the DDA's budget, at 6:30 p.m. on Tuesday, May 14. It will take place in the council chambers located at 22 W. Burdick St.
As it stands right now, the DDA is projected to end the current fiscal year with a deficit of $8,936. The budget the DDA originally requested for the 2013-14 fiscal year showed a deficit of $76,509.
Like many other government entities, the DDA has been forced to deal with declining tax revenues due to decreasing property values over the last few years.
It was originally projected that the DDA would receive $421,288 in property tax revenues for the 2012-13 fiscal year.
Unfortunately, it appears the DDA will end up with an estimated $379,542 in tax revenue – $41,746 less than anticipated for this year – based on the budget worksheets submitted to council.
"The DDA's situation is due to the fact (that) the projected revenue (from) taxes didn't materialize," said DDA Treasurer Ed Hunwick, who noted the authority's tax revenue has been in "steep decline for the last three years."
The 2013-14 fiscal year isn't looking any better as the total taxable value of properties in the DDA district decreased by 3.9 percent this year, which equals $15,560.
Add to that a projected $14,560 in unpaid delinquent taxes – that's based on how much wasn't paid this year – and the DDA is looking at $30,120 less in revenue for 2013-14.
To deal with this declining revenue and not have a deficit, the DDA submitted three proposed budgets. In addition to various spending reductions, all three cut the amounts the DDA pays, by varying degrees, to the village for police and DPW services in the downtown area.
The DDA currently annually pays the village $60,000 for police services and $85,000 for DPW services for a total of $145,000.
The proposed budgets recommend cutting those payments by as little as $21,000 and as much as $86,000.
Some council members weren't too keen on that idea given any cuts it makes in those payments would affect the village budget, which is already very tight.
Village President Tony Albensi suggested the DDA look at either cutting the executive director's position to a part-time gig or eliminating it altogether.
The director's position, held by Madonna Van Fossen, costs the DDA $68,310 annually. That includes $48,900 in wages and $19,410 in benefits.
If the position were reduced to 29 hours per week, it would save the DDA $30,000. If reduced to 20 hours a week, it would save the DDA $41,000. If the position were simply eliminated, it would save the $68,310 for Van Fossen, plus the all the money to run the DDA office.
"Is this council willing to make that type of tough decision?" Albensi asked. "These are options that we need to consider as well. They may not be popular. They may not be what we want to do."
Albensi noted his suggestion "has nothing to do with (Van Fossen) whatsoever." No matter if it's a public or private entity, he said administrative costs are always the "largest expense."
"When companies and municipalities look to cut expenses, you have to look at cutting administrative costs," Albensi said.
Councilman Elgin Nichols believes reducing Van Fossen's job to part-time isn't enough of a savings.
"The only place to save (money) is (by eliminating) the whole job, unfortunately," he said. "This is what I feel needs to be done. If I were looking at this as a financial expert, I would say this is what needs to be done."
"I completely understand where you're coming from and looking at it from a business perspective, that makes perfect sense," Hunwick said.
But Hunwick asked council to consider Van Fossen's benefits such as her close ties to Oakland County government and the fact that she's "well-known" and "well-respected." He also noted how she's helped put Oxford "on the map."
He proposed that Van Fossen could be given an opportunity to "go out and sell the downtown more effectively" and generate additional revenue to help the DDA survive.
"If she can't do that, then I say eliminate the position," Hunwick said.
Councilwoman Sue Bossardet noted officials must think ahead if they're going to terminate Van Fossen. "I think if we're going to make the hard decision and eliminate a position, then we, as council, need to have a plan about what's going to happen," she said.
Bossardet did not agree with the idea that village Manager Joe Young could simply take over as DDA director, too.
"I do not, in my heart, believe that Joe can function as the DDA director . . . at the capacity that's being done now," she said. "I believe that the man has enough on his plate as village manager."
Council also discussed the option of the village loaning money to the DDA, from either the water or sewer funds, to help deal with potential deficits and meet its current financial obligations. This option was proposed by Bossardet and Young, not anyone from the DDA.
That idea was met with strong opposition from both council and DDA board members.
"I'm not a big fan of this loan proposal," Albensi said.
"Let's assume that this loan goes through and it gets them through this year. Well, what about next year? And what about the year after that? And the year after that? And then the DDA next year, can't pay back their loan."
"They have no money," Nichols said. "I can't see any way that they would be able to repay this if we were to give a loan. We're not in the loan business. We're not a banking business."
"As a board member, I would hope we could figure out a way to overcome our situation without the benefit or the need for a loan from the village," Hunwick said. "I don't support the loan. I would like to find another way. But I definitely don't support a loan."
"I would be very disappointed in the village council if they would loan (money to) an entity that has no way to pay it back," said DDA Chairman Bill Dunn, who's also the township supervisor. "We have no money."
Dunn said if a loan proposal came before the DDA board, he would vote against it.
"The DDA got in this mess," he said. "The DDA is either going to have to get out of it on their own or (council is) going to have to make a decision."
There was some discussion about the possibility of the DDA selling the three vacant lots it owns at 32, 36 and 38 E. Burdick St. as a way to generate some additional revenue.
Hunwick told the council he's been a proponent of this option for a while, even before this financial crisis arose.
"We're not going to get what we paid for (them), but at least, if we could get close to $75,000 or $100,000 for (them), that would take care of what our current needs are," he said.
"We do have the assets," Hunwick explained. "I think it makes sense for us to try to at least get involved with a real estate agent to try to sell them at a sensible price. If we can get better than $75,000 for the three of them, it would probably make sense to sell them."
Back in 2001-02, the DDA purchased the three parcels for a total of $585,000. All three properties had houses and backyards when the authority bought them. Two of the houses were later moved while one was demolished. The backyards of all three parcels were split off and used for municipal parking.
Since 2008, the DDA has been hoping to sell what remained of these three parcels for $100,000 each.
"We're sitting on them and it doesn't do the village any good and it doesn't do the DDA any good," Hunwick said. "We're not going to get $500,000 for those properties in the next 10 or 15 years . . . unless something magical happens around here where property values quadruple. It's not realistic to think we're going to get back what we paid for them."
Nichols agreed with Hunwick that liquidating these properties is a good idea, however, he noted the sale proceeds won't sustain the DDA in the long run.
Nichols said what the DDA really needs is a business plan outlining how it can "get out of the hole" and "stay out of the hole." He admitted that's "going to be quite a task."
"I do think that (the DDA) board is working hard (to resolve its financial crisis), but you really have nothing to work with other than property," Nichols said.
Schneider compared the DDA to a kid who asks his mom for more money because he spent all of his allowance.
Hunwick took exception to that remark.
"We have been working real hard to keep the finances in line," he said. "We're not out there spending money willy-nilly. I think it's unfair to be put in that category of 'we're just spoiled kids.'"
"We don't have any money because of the fact that there were decisions made in the past that we can't overcome at the present," Hunwick told council. "It's not like we're running amok, spending money, not knowing what we're doing. We've been very diligent on how we're spending money this year."
"This current board did not create this situation," he said.
CJ Carnacchio is editor for The Oxford Leader. He lives in the Village of Oxford with his wife Connie and daughter Larissa. When he's not busy working on the newspaper, he enjoys cigars/pipes, Martinis/Scotch, hunting and fishing.