Using a tax increment financing scheme, since 2006, over $5 million dollars have been diverted from the cash-strapped public schools and given to Ann Arbor SPARK officials.

WHILE ANN ARBOR  Public Schools officials, parents and students struggle with the ramifications of a $6 million structural budget deficit, Ann Arbor SPARK officials receive tax revenues diverted from the public schools through a tax-increment financing (TIF) scheme. The amount diverted is projected to reach upwards of $2 million per year by 2018 and is presently slightly more than $1.5 million per year.

According to 2013 budget documents submitted to Ann Arbor City Council, SPARK officials spent the money diverted from public schools on their own salaries, “internship support,” “bootcamps” for entrepreneurs, marketing, and legal fees, among other expenditures.

Under the aegis of a tax-increment finance (TIF) zone created in 2003, and with the help of a financing authority overseen by a nine-member Board, Ann Arbor SPARK has been given over $5 million tax dollars that would have otherwise gone to fund the local public school system.

Local schools, meanwhile, imposed pay-to-participate fees on students and parents for sports participation. The fees brought in over $785,000 according to the district’s most recent audit statement.
In its 2013 budget, the Board of Education members elected to keep middle school baseball, softball and boys and girls seventh-grade basketball but to triple pay-to-participate fees from $50 to $150. That move was meant to raise an additional $150,000 in revenue.

Last year, AAPS issued pink slips over 200 teachers. Class sizes have been increased significantly, and officials have closed swimming pools to save money. In its 2013-2014 budget, the Board of Education attempted to charge parents of Huron and Pioneer High School students $100 for 7th hour classes in order raise $100,000 in revenue. Legal action by the ACLU of Michigan forced the Board of Education to back away from that effort.

In fact, each of these items the Board of Education cut in 2013 represents a fraction of the $5 million in downtown property tax dollars which have been diverted to Ann Arbor SPARK:

• Eliminating high school transportation, $466,000.
• Closing the middle school pools, $70,000.
• Eliminating counselors (3 full-time equivalents for $300,000).
• Freezing library purchases for a year, $100,000.
• Reducing noon-hour supervisors, $71,000.
• Cuts to athletics, $512,685.
• Reducing the central office personnel by 6 FTE and restructuring, $477,540.

In the Year End 2013 presentation, the Lower District Financing Authority presentation included a detailed budget which shows that of the $1.575 million dollars diverted from local public schools to Ann Arbor SPARK via a contract for services overseen by the LDFA Board, in fiscal year 2013,  $337,000 was spent on direct staffing expenses for SPARK and another $546,942 was spent on Phase III services performed by SPARK staff, referred to as “intensive services.”

The hourly rates paid for those Phase III services varied anywhere from $87.67 per hour to $3,680 per hour.

Records show that Ann Arbor SPARK budgeted $71,633 to market its services to entrepreneurs, or just slightly more than what it would have cost the Ann Arbor Public Schools to keep its middle school pools open.

The argument by those who support the diversion of public school money to Ann Arbor SPARK and entities like it point to the importance of job creation as a benefit to the local economy. To whit, the LDFA’s report to Ann Arbor City Council included an impressive list of companies which had created and retained jobs as a result of “accelerator” services  provided by Ann Arbor SPARK in fiscal year 2012-2013.

In all, 70 companies received what SPARK officials call “business services”— services for which the company was billed.

In total, the LDFA report on SPARK’s activities claims that in a single year 213 FTE jobs were “retained,” and 25 FTE new jobs were “created.” In 2013, two-thirds of the companies that paid Ann Arbor SPARK for business services created no new jobs. In addition, the report claims there were 64 positions for independent contractors created through SPARK’s various services to the companies listed.

Taxpayers spent $60,000 for each of the 25 new jobs “created” with the assistance of Ann Arbor SPARK staffers in 2013. The State of Michigan per pupil foundation allowance in 2012-2013 was $6,966 and the AAPS took in upwards of $115 million in foundation allowance money for its 16,850 students. The AAPS data are verified and so taxpayers know exactly how many students the district serves in any given year, how many graduate and how many drop-out.

Ann Arbor SPARK and the LDFA can’t make the same claim. Their information concerning job creation and job retention has never been verified. The question is whether the job creation and retention numbers presented in the LDFA’s 2012-2013 report are accurate. Michigan’s Auditor General, Thomas McTavish would, no doubt, urge caution.

In September 2013, Crain’s Business Detroit published a piece titled, “Audit: Michigan Strategic Fund erred in reporting job-creation numbers.” Writer Chris Gautz revealed that, “The Michigan Strategic Fund has been giving the Legislature a rosier report on the success of its job creation programs than what is actually occurring, a state audit has found.

The audit, released today, also found that the Strategic Fund has not been disclosing in its reports to lawmakers that it relies on the companies that have been receiving state assistance to provide the job numbers; the fund does not verify whether the information is accurate.”

Ann Arbor SPARK and the LDFA gather data for their annual reports to City Council the same way. In fact, the LDFA report states that “Out of the companies that had Business Accelerator engagements this year, 46% responded to our Annual Survey.” Not only does this confirm companies self-report, this reveals that the majority of the 70 companies which either received public money or services funded with public money from Ann Arbor SPARK did not account for how well (or poorly) the services worked.

Crain’s reported, “The audit, submitted by Auditor General Thomas McTavish, found that just 19 percent of promised jobs were created; one company, in fact, went bankrupt. The bankruptcy was not included in the report by the Michigan Strategic Fund to Michigan legislators.”

Likewise, the LDFA report, neglected to mention that five of the companies to which SPARK had provided services in 2013 had gone under.