Szakacs: 'I want to dissolve the DDA and LDFA'

EVART — Evart City Manager Zack Szakacs believes the city needs to move forward without the Downtown Development Authority and Local Development Finance Authority.

Szakacs addressed his concerns to members of Evart City Council at the Dec. 2 meeting, stating he believes the two organizations were successful in their early years, but a legacy cost has been created without financial assistance from either to offset the city's burden. Economics will play a major role in how the two entities will be funded in the future, he added.

A loss of revenue between 58 and 65 percent is expected to occur due to the closing of Dean Foods, including the loss of personal property taxes and sewer revenue. The possibility the DDA and city will enter the Michigan Tax Tribunal with Dean Foods in the 2014-15 year are some of the issues surrounding his thought process, he said.

"When we lose the Dean's tax revenue, it's going to decrease the money that the DDA, LDFA and the city receives," Szakacs said.

This fiscal year, the LDFA received a total of about $60,200, and will have a fund balance of about $36,100 after expenditures.

The DDA received about $71,200 this fiscal year, but next year, if the personal property tax exemption law passes, the group will only receive about $10,500. Its fund balance will be about $143,000 by the end of the year and Szakacs believes the DDA will have to use that money to fund itself until it has nothing left.

"I'm not doing this to pick on anyone," he added. "I'm doing this because our financing comes from a tax base that was set in 1990 and the LDFA and DDA get to capture the difference in the increase in the property value. I'm still trying to run everyone else with these old numbers. It's getting to the point that I got yelled at by our auditors because we only have a $5,000 buffer in our general fund. This isn't working and we don't have flexibility if an emergency comes up because we're budgeting so tight."

Evart Councilor Dan Elliott, who directed both the LDFA and DDA in years past, rebutted, Szakacs' claims, saying the LDFA is the reason the last large plant based itself in Evart. Also, LDFAs and DDAs are important because they have legal authority to function where cities cannot. Szakacs is not offering concrete facts to council members, he added.

Instead of dissolving the entities, he offered another option.

"In affect, the No. 1 tool in economic development today, all across the country, is tax increment finance," Elliott said. "Tax increment finance is by far the best way to help companies or small business with the basic, up-front start-up costs."

Elliott refuted the issue about personal property tax because the law has yet to pass. The real issue, he said, is the level of education in the city which hinders economic development. Students need to be given a reason to stay. In addition, Elliott believes Evart should be comparing itself to bigger cities like Detroit.

Szakacs also questioned whether the DDA or LDFA have "completed the purposes for which they were organized," as stated in section 10 of the resolution adopted in 1990 for the LDFA and in 1984-85 for the DDA. He asked if the original development plans for both entities have been completed. In addition, he is unsure if the tax incentment financing plan had been amended by the city in the last 15 years.

He asked whether the LDFA and DDA have enough fund balance to exist for the next few years, adding he personally believes they do not unless something drastic happens. In addition, the two entities have not been submitting annual reports specified by state statutes and the Tax Incremental Financial Authority barely generates enough tax revenue for either to make their payments, which means the city could acquire their debt.

If the two entities were dissolved, the city would claim about $138,000, Szakacs said, and the city council members need to consider the option, especially if the city loses money to fund the pair also while providing maintenance and services.

"Basically, if we dissolve them, the city would not have to disperse money and we would capture $138,000. The city should be asking whether we can continue losing money to its LDFA and DDA," Szakacs said. "The money both entities collect could be used by the city and this council decides how the tax revenue is spent. We're taxed to the limit. We're at 14.58 mils."

Szakacs recommends dissolution while the DDA and LDFA have minimal amounts of debt that the city will inherit, and to take a portion of the revenue from the dissolution and hire a part-time economic developer who would take over both districts and report to city council. Ideally, the DDA and LDFA would be dissolved by June 30, 2014. Deeds and revenues would be transferred to the city.

"Dissolving the two authorities is only one part of the city's future budgeting plans," he said. "Restructuring can only lead to cuts from several departments."

He noted the current DDA and LDFA can be dissolved, but also can be resurrected in the future.

Councilor Gregg Sherman disagreed with Elliot's comparison statement. He asked Elliot is the DDA and LDFA were structured correctly, to which Elliot answered yes. The problem with finances, Sherman said, is an issue all small towns are facing and no one's fault, but he could only be 100 percent for the LDFA if he saw jobs coming into the city.

Councilor BJ Foster looked at the two entities as businesses that have unsustainable models. If the DDA budget sinks to $10,000, it cannot function even from a business standpoint, he said.

"If you look at the math of this thing, it's horrendous," he added. "If I owned a business like the DDA or LDFA, I'd be looking at how to get out of it."

DDA Director Al Weinberg refuted some information in Szakacs' report, but said he has a mission to build a vibrant downtown community to attract and retain local businesses to the city. His plan remains to have a purpose and he still feels he is doing the work he set out to do when he took over the director position, he added.

"If we get to the end of our time, we still have a purpose and we still have a plan," Weinberg said. "We're doing the work we were asked to do in the long-range plan we adopted in 2012."

By request of Evart Mayor Eric Schmidt, a special meeting to discuss whether to dissolve the groups or keep them is scheduled for 6 p.m. on Wednesday, Jan. 8. Action may be taken.

"The cards have not been played by the state yet," said LDFA Director Melora Theunick. "Nothing will happen until 2014, so it's just a matter of waiting it out and seeing what the state legislature does."

"I think that if you ask the right questions, you get the right answers, and one of the right questions is what can we do to make it so where we have the best Evart that we possibly can today and the best Evart that we possibly can in the future," Weinberg said. "That's always been the driving force of my wanting to be a part of the DDA. I think overall, the record of the DDA proves that's what we're all about. We try to do the best. I'm looking forward to working with everybody to make Evart a great Evart today and a great Evart tomorrow."

"I don't think it's a question of us being valuable or not," Theunick said. "We have track records behind us to prove that because of the LDFA and the DDA there has been a lot of positive actions. It all comes down to economics and unfortunately it's a budget issue.

"We're hoping the meeting isn't going to be an inquisition and we're hoping to see if we can come up with a good, viable plan for the future. Hopefully the economy is turning around. You can't always talk about what's going on, but there are things that are happening. We just have to be patient."

By request of Evart Mayor Eric Schmidt, a special meeting to discuss whether to dissolve the groups or keep them is scheduled for 6 p.m. on Wednesday, Jan. 8. Action may be taken.