I have posted before on the controversies involving the Carmel Redevelopment Commission .
Today’s Indy Star has a long and somewhat jaw-dropping article that describes in detail the creative financing that Carmel’s mayor (Jim Brainard) and the Carmel Redevelopment Commission used both to fuel the construction boom in the Downtown Carmel TIF district, but also to drive the Redevelopment Commission to the brink of default.
In short, in order to avoid the oversight and opposition of the Carmel City Council, the Redevelopment Commission not only bonded for the capital construction of the Center for the Performing Arts and other infrastructure in the downtown TIF, but also devised a creative method to finance upgrades to the center, and even more stunningly, the operations of the center and a separate staff for the Redevelopment Commission.
Typically, Redevelopment Commissions use the staff of their parent city or county, because TIF funding can’t be used to hire staff. Monroe County’s Redevelopment Commission, for example, uses the services of one of the Monroe County attorneys. However, in the case of the Carmel Redevelopment Commission, they and the mayor didn’t want the scrutiny that would come from having city staff supporting the commission. They developed a financing method called “installment purchase contracts” that would basically allow developers to take out public debt (often at a very high rate of interest) and then have the Redevelopment Commission contract with the developers for the purchase of the improvements (seemingly a variant of the more common lease-purchase arrangement). Revenue from this arrangement was then used to fund the operations of the Redevelopment Commission. In essence, this was borrowing on assets to fund operations — an inherently unsustainable activity (sort of like taking out a home equity loan to pay your electric bill).
The mayor and the Redevelopment Commission’s defense, however, is spirited as well: the mayor had a strong vision for downtown Carmel that required significant redevelopment, and that ultimately resulted in very positive national recognition for livability of the city.
Ultimately the resolution will involve some sort of refinancing of the debts of the Redevelopment Commission by the City of Carmel. The major point of negotiation will be about how much control over the RDC’s operations and activities the city (and the council) will demand.
The whole article is here, and is very much worth reading:
The IndyStar reported this morning that two Carmel corporate tax abatements may be at risk of being revoked.
Both companies, Dormir (AKA Sleep LLC) and Pharmakon Long Term Care Pharmacy, Inc. were given personal property tax abatements by the City of Carmel in 2008 for moving their facilities to Carmel. The tax abatements were on the value of information technology (IT) equipment installed at the facilities for use in manufacturing and distribution activities.
When a company applies for a tax abatement in Indiana, it is required to file a Statement of Benefits stating the amount of the investment the company is requesting a tax abatement on, as well as the number of jobs and salaries that it estimates will be created by the investment. The company is then required to file annually, for the length of the abatement, a Form CF-1 Compliance with Statement of Benefits – Real Property (for tax abatements on improvements to real property), or a Form CF-1 Compliance with Statement of Benefits – Personal Property (for tax abatements on personal property, i.e., manufacturing and logistical equipment). This form requires the company to report the actual salaries and jobs created as a result of the investment. These forms are then reviewed annually by the body that granted the tax abatement (in this case, the Carmel City Council) for compliance with the terms of the tax abatement.
According to the draft resolutions in the Carmel City Council meeting packet for 2012-09-04, neither company submitted their CF-1 forms this year for review (the form was due on May 15). Also according to the resolutions, Dormir submitted a letter of explanation on August 8. This letter is referred to as Exhibit A in the draft resolution, but unfortunately has not been included in the meeting packet.
I have included the relevant portions of the meeting packet here: Tax Abatement Revocation Carmel 2012-09-04 Meeting.
Note: in the time I have been on the Monroe County Council, although we have occasionally had to chase down the information or follow up for more details, we have not had a company with a tax abatement decline to provide a CF-1 compliance form.
The Indianapolis Star today has an interesting article summarizing a situation in Carmel that has been going on for several months now:
In short, primarily because of cost overruns on the construction of the Carmel City Center (think Palladium), which is funded by the tax increment in a TIF district, the Carmel Redevelopment Commission has gotten into a situation in which it doesn’t have any income left for further redevelopment after its debt service payments are made. The City of Carmel is essentially agreeing to bail the Redevelopment Commission out by refinancing its debt. The savings through lower interest rates will either allow the debt to be paid down faster or will allow additional revenue to complete the development. In exchange for the bailout, the City Council will be asserting greater control over future debt of the Redevelopment Commission.