Could Carmel’s debt make this tax a reality?
If anyone were to wish for a crystal ball, it might be the leaders in Carmel’s city government.
“The only way you can predict the future is to look at the past,” said Carmel Mayor Jim Brainard.
But Brainard’s political opponents say that Carmel’s past predicts a risky future.
Indiana’s Department of Local Government Finance lists Carmel’s debt at more than $900 million.
If Carmel can’t pay back its debt, a drastic solution might be needed: A new tax. Specifically, a special benefits tax on all households to pay off debt.
It’s not just an idea. It’s written into the documents for much of the money that Carmel borrows.
Brainard said it will never happen. There are so many layers of protection – reserve accounts and developer guarantees – that he said it would take a very extreme situation.
“Oh, Canada would have to bomb us, the buildings would go away and there would be no revenue to rebuild them,” he said. “Although the buildings are insured. The buildings would literally have to all be destroyed.”
But the Special Benefits Tax – SBT for short – begs to be examined. That’s because a majority of members of the Carmel City Council have expressed their concerns. In addition, Clerk-Treasurer Diana Cordray made headlines recently releasing an explosive report asking for an audit of the CRC to assess the risk of the SBT ever happening. She claimed “politics needs to be replaced by unbiased fact” by getting a different outside opinion on Carmel’s financial state.
“This transparency is necessary to protect Carmel taxpayers from future implementation of a Special Benefits Tax,” Cordray writes.
How much would this tax be? Loren Matthes, who advises the city for the accounting firm Umbaugh & Associates, said it would be about $24 a year for the average Carmel household to pay off a $1 million shortfall.
Doesn’t seem like much, but that doesn’t matter to some, like City Councilor Rick Sharp, who is considering a run for mayor.
“So that’s the same as saying, ‘It’s OK to lie because it was only a little lie.’” He said. “I don’t care if it’s a nickel. I took an oath to protect the taxpayers’ interests.”
How did we get to this point? Well, let’s look at the brewing battle that will shape the upcoming mayoral election.
Carmel’s financial picture
On the TV show “Dragnet,” Sgt. Joe Friday used to tell people, “Just the facts, ma’am.” Well, in this situation, that can be hard to do.
Umbaugh released a report on May 29 that outlined projections for tax increment financing, which is a mechanism to capture increases in property tax values and use that to fund redevelopment. TIF funds are essential to pay back bonds used to build structures such as The Center for the Performing Arts.
There’s quite a bit of debate about whether Carmel can raise enough TIF to pay off its debt.
One person could say, “Umbaugh’s projections are a fantasy, we’ll never hit those numbers.” Another would say, “These projections are very conservative and you’d have to be an extreme pessimist to think otherwise.”
And both people would probably pass a polygraph test. That’s because it all depends on your opinion of “What is risky?” and “How much risk can you handle?”
Advocates on both sides shout out: “These are facts!” But it’s not that simple. Numbers can lie. They can be open to interpretation.
From 2014 to 2037, Umbaugh projects a total of $476.9 million in TIF revenue with $485.9 million in debt obligations.
That would appear to show a deficit and Carmel can’t pay back its debt, but Brainard points to more than $30 million in projected reserves from Parkwood, a TIF district that has paid off its project and can now fund other debt.
City Councilor Sue Finkam points out that Umbaugh’s TIF projections don’t account for “growth,” meaning new developments or increases in assessed value.
Meyer says they are “very conservative” and anyone who doubts that is being unrealistic.
“They are taking the absolute worst case risk,” she said. “The absolute worst case risk is that none of it happens.”
That’s one way to look at it. But, again, there’s always another interpretation.
Another way is to say Umbaugh is assuming that the recession is over and it will never come back.
“Umbaugh is not going to make a mistake when they add two and two,” City Council President Eric Seidensticker said. “Now, the integrity behind the numbers? I don’t trust the assumptions behind the numbers. They are not required to audit the veracity of the numbers they receive from the city.”
Sharp points out that Umbaugh’s numbers don’t account for any dips in the line graph. No adjustments for when the economy struggles.
“There’s not a single glitch factored into that. Not one,” he said.
Snyder agrees, saying the CRC was shortsighted in the past so it would be “wise to be prudent in the future.”
“It was impossible for them to think that the TIF could ever go down, but it did,” she said.
City Councilor Luci Snyder said even if there’s enough money to pay the debt, she’s concerned about, “cutting it really close.” If TIF projections or other revenue streams fall short, there could be a problem, she said.
“You have to try to not borrow to your absolute limit,” she said.
Brainard said it’s important to bring up taxes when talking about debt. Brainard cites Carmel’s overall property tax rate at 0.7 percent as of May, which is the ninth lowest rate among similarly sized Indiana cities.
Brainard said a $10,000 debt might seem like a lot to someone making $40,000 a year, but to a millionaire it would be quite different.
“You have to look at what percentage of your debt is revenue and we’re very low,” Brainard said. “We are right where we should be. You look at the other good cities and you see the same thing. If we weren’t, we wouldn’t have the lowest taxes in the state.”
Brainard noted that Carmel has a AA+ bond rating, the ninth lowest tax rate in the state, a debt balance of 15 percent of revenues and the largest Rainy Day fund in Indiana.
Developments not built
One reason CRC critics are skeptical of Umbaugh’s TIF projections is because revenue is expected from buildings that are not built yet.
Wabash Scientific, a consulting firm that works closely with the clerk-treasurer’s office, issued a statement that noted several projects related to 126th Street and the Illinois Street expansion have not been built. Their analysis totals the delayed and abandoned projects at more than $80 million in assessed value, out of $110 million in total assessed value projections.
Mike Hollibaugh told Current that most of the projects Wabash mentioned haven’t begun yet. In some cases, the developer pulled the plan when it when through plan commission or land is still waiting to be sold. But Hollibaugh said that shouldn’t hurt TIF projections because Umbaugh’s analysis is based on historic trends that have been proven accurate over time.
“So the numbers are pretty conservative but pretty realistic based on a historic development trend,” he said.
When asked, Brainard responded, “Well, at some point, yeah. The projections say sometime between 2017 and 2026.”
Meyer said TIF revenue is collected about a year after construction starts, so a project that has TIF revenue projections for 2016 would need to be mostly complete by March of 2015. In some cases, these listed projects are currently empty fields.
Meyer said that’s no reason to worry. Future developments only make up 2 percent of projected TIF for 10 years and she said the other TIF projections will likely be much higher than they are listed in the Umbaugh report because the report doesn’t factor in assessed value inflation.
She said Umbaugh had every good reason to include each of these developments in the report – even if things have changed since the report was released.
“These are not pie in the sky developments,” she said. “These are specific projects and we can assign assessed values and use best practice trending analysis and apply it to the future. Yes, all of these can change. They can change tomorrow. That’s why the CRC needs to continue to drive home its mission to redevelop the city’s core.”
Meyer adds that two huge developments worth hundreds of millions of dollars – Midtown and City Center Phase Two – weren’t included in these projections because it was always assumed that they weren’t going to happen or if they did happen that the developer would get to keep all of the TIF money. Both cases would most likely be TIF splits with the CRC receiving 10 to 25 percent of the revenue to pay off debt at other developments.
Sharp said that’s not the point. He accuses Meyer and Brainard of “changing the topic” to divert from the real issue at hand: they are projecting revenue on projects essentially don’t exist in his mind.
“Some of this money is projected in 2016, so I don’t see the trade-off,” he said. “Midtown and City Center are a ways away and we won’t see that money soon.”
Seidensticker says Brainard is being overly optimistic to think all of the development will occur.
“Optimism is a good thing but we have to be realistic as well,” he said. “I think the mayor would like for this to happen but it’s clearly not going to happen in this time frame.”
Promises not kept
Brainard said the best way to predict the future is to look at the past and his expected opponent in the next mayoral election would agree.
“The past with this administration is littered with broken promises and half-truths,” Sharp said.
Four members of the City Council who regularly vote against the mayor are known as the “four S’s.”This majority includes Luci Snyder, Eric Seidensticker, Rick Sharp and Carol Schleif – all of whom tell Current that they feel Brainard and the CRC have broken past promises, which makes them reluctant to support future deals.
Right now, the CRC is proposing a municipally backed bond –between $17 and $20 million – to build a parking garage to support construction of the second phase of the Carmel City Center. The developer, Pedcor, would guarantee the TIF revenue.
Meyer said she’s anticipated every negative reaction and worked that into the deal. The developer, Pedcor, would guarantee the TIF revenue. It would be “self-sustaining” and “developer maintained,” she claims. And she’s put several layers of protection to ensure the ability to pay back the garage’s debt.
Sharp said past dealings with Pedcor and the CRC has made him skeptical, especially when it comes to promises about parking garages.
The City Center’s first garage was supposed to have a thousand parking spaces, but the building has less than half of that. It was also said that Pedcor would take on all of the risk for the debt, but the CRC bought the garage for $22.5 million.
“The developer is taking all the risk,” said Bruce Donaldson, an attorney for the city told The Indianapolis Star in 2007. “There will be no city dollars pledged to support those bonds. It’s all designed so the city takes no risk.”
Brainard said almost everyone on the council agreed to scale back the parking garage and explained in great detail why buying the garage was a major financial benefit to the city. For an in-depth explanation, click here.
“The property taxes from the new buildings pays the debt associated with the parking garage, not residential taxpayers,” Brainard said.
But that’s not the only promise that Brainard’s critics point out. They mention The Center for the Performing Arts having its cost go from $80 million to more than $120 million. They mention a hotel that was planned for the Carmel City Center that hasn’t happened. They mention an amphitheater and Chandelier Court that were supposed to be part of City Center.
“If you want to predict the future, look at the past,” said city council president Eric Seidensticker. “If the mayor hasn’t kept his promises before, what makes you think he’ll keep them in the future?”
Brainard said some of these items mentioned are “projections” or “goals” but not necessarily “promises.” He said things change and the council is always involved in all of the changes. Back in 1997, a movie theater was thought to be the centerpiece of the City Center. Click here to read more about Brainard’s response to these accusations.
Brainard said most everyone on the council agreed to scale back the parking garage. He dismissed the accusation of a “broken promise” as just election year campaigning.
“First of all, transactions can change over time,” he said. “They can be amended.”
Brainard said “the amphitheater is built (just west of the Monon Trail) and Chandelier Court is still part of the plans, but won’t be constructed until the Baldwin Chambers building is built.”
Meyer said she’s never even heard of the Chandelier Court.
Meyer said the CRC is “building what we can afford” so she understands that some projects end up being bigger than expected and some end up being smaller.
“Scaling back is a reality,” she said. “It’s a response to us being prudent and fiscally responsible. Plans always change and they will always change until the day until the last tree is put into the ground. I hope some city councilors appreciate that we are always try to make these projects better.”
Finkam said she would be disappointed if some councilors used this argument to vote against the new parking garage.
“To say promises weren’t kept eight to ten years ago and make it punitive to this deal is unacceptable to me,” she said. “It’s a different time. It’s a different council. It’s a different executive director of the CRC. And frankly, the City Center project itself has changed over time, partly because of what we as councilors said we wanted.”
Threat of a special benefit tax
Where is all of this leading? The Four S’s claim that overly optimistic projections and broken promises will lead to a Special Benefits Tax for all Carmel taxpayers.
Is it likely? Depends on who you ask. City Councilor Ron Carter has consistently called this a “Chicken Little” tactic where desperate politicians claim the sky is falling in order to scare people to vote for them.
Brainard said there are way too many stop gaps to prevent the SBT.
“You have to remember, the special benefits tax isn’t an automatic thing either,” he said. “Say you were $300,000 short, the city’s got almost $30 million in cash.”
Sharp said many of those stop gaps are because of the work done by the Council, giving credit to Seidensticker and the Clerk-Treasurer’s Office for working on a “revenue deposit agreement” that ensures that the proper steps are taken to avoid the SBT.
Seidensticker recently asked what would happen if the SBT wasn’t attached to certain bonds taken out by the city and he was told by Umbaugh that the interest rate would dramatically rise without using the SBT as a “credit enhancer.”
Matthes wrote an impassioned e-mail after Cordray released her request for an audit to access SBT risk. Matthes claims that there’s no chance to see the SBT and it would be very low – about $24 a year for a $1 million shortfall – if ever enacted.
“Taxpayers in Carmel already enjoy one of the lowest tax rates in the state,” she writes. “If there were an unexpected shortfall in the commercial revenues, a tax levy would not have much impact on the taxpayers … If such a shortfall were really to occur, the City would not even have to levy a tax because the City has other available funds to fill a gap. The Clerk-Treasurer and Council President (and their consultant) should be aware of these facts, having just approved the City’s 2015 budget.”
When asked about the $24 a year, Meyer said she thought that amount was “minuscule.”
But Seidensticker said that doesn’t matter.
“To me, it’s about the principle,” he said. “I won’t raise any taxes – no matter how much – for this type of project. The developers can do it.”
Seidensticker said the risk is real. Otherwise Umbaugh wouldn’t have calculated how much the SBT would actually be.
“It doesn’t matter how much it is. It doesn’t change the fact that the risk was there,” he said. “If you want to talk about the amount of risk, that’s a different topic. But the risk is there.”
What about parking?
It was originally reported that the Carmel City Center parking garage would have 1,000 parking spaces. Here is what is there now:
135 24-hour public parking spaces in the garage
20 public parking spaces except for business hours
111 24-hour residential restricted parking spots
In addition, there are also 50 public parking spaces on top (plaza) of the phase 1 northwest end of the parking garage as well as 35 parking spots on the plaza level and 48 public street spots.