Risk-free debt? Carmel’s CRC director, experts explain


Before jumping into a discussion about $39 million in bonds proposed to fund improvements to four Carmel projects, city officials at the Nov. 18 city council meeting made two things clear: taxpayers would not be on the hook for repayment of any type and they didn’t believe the bonds should be added to the city’s debt total – even though the Dept. of Local Government Finance will count it that way.

Carmel Redevelopment Commission Director Henry Mestetsky told the city council that “it is a positive thing for the city” whenever developer-backed bonds are proposed, as all of the risk would fall on developers.

The city is only involved, he said, because developers are using tax increment financing – which captures increased property tax revenues that result through improvements in a certain area designated by the city – to fund aspects of the projects, such as parking garages and infrastructure improvements, which add to a project’s viability. State law requires the city to be the issuer of bonds when TIF funds are the repayment source.

After the city issues the bonds, Mestetsky said its only role is to route property taxes captured through the TIF district to the bondholder, which is either the developer or its lender. If TIF revenues fall short of projections, the bondholder would take the hit through lower-than-expected bond payments. If the bondholder is a lender, the developer would be responsible for covering the difference. If the developer holds the bond, it may not recover all of its investment. Either way, the city would never be required to cover any shortfalls, Mestetsky said.

Even if a developer were to go bankrupt halfway through constructing a project, another developer would purchase the building and complete the project, Mestetsky said Nov. 26 at a council committee meeting. City officials are aiming for a finished, tax-generating building, and once it’s complete Mestetsky said the city and taxpayers aren’t directly affected by who owns it or if the developer didn’t recoup as much of its investment as planned.

“From the city’s perspective, we have an awesome built project,” he said. “A developer has to take a haircut on the bond, because it’s now bringing in less than what’s projected. The city’s not on the hook. The city is still getting a bunch of tax revenue from a project like this.”

Paul Helmke, a professor in IU’s School of Public and Environmental Affairs and former mayor of Fort Wayne, said he hadn’t seen details regarding Carmel’s proposed bonds but that he found it “hard to imagine” that the city wouldn’t have any liability in the deal. However, it shouldn’t be something that worries taxpayers, he said.

“Technically, anytime the city is issuing a bond, there is some level of risk for the city, but it’s so miniscule that it’s hardly worth talking about,” he said. “I don’t know of any situation anywhere where a TIF bond has never been repaid, whether the developer is holding the bonds or not.”

At the Nov. 18 meeting, city officials bemoaned the fact that the bonds – if approved – will be counted by the DLGF as Carmel debt. Currently the DLGF lists Carmel’s debt at nearly $1.4 billion, more than $882 million more than Fishers, a neighboring city with a similar population.

“It’s absolutely ridiculous. It’s completely misleading the way DLGF counts developer bonds as Carmel debt and it goes into the $1.4 billion signs you see in people’s front yards,” Mestetsky said Nov. 18, referring to campaign signs referencing Carmel’s debt.

But Craig Johnson, an associate professor in IU’s School of Public and Environmental Affairs who has written extensively – and sometimes critically – about the use of TIF districts, said he believes it makes sense to categorize developer-backed debt that way.

“The (bond payment) funds come from property taxes that are expected to be generated by the development, but they’re still coming from the property tax, which is still paid by property taxpayers,” Johnson said.

Mestetsky said the taxes captured from the proposed TIF districts would only be coming from one taxpayer: the developer, who is already taking the risk.

“A taxpayer is on the hook in the sense that the developer is a taxpayer or whoever goes into the developer’s project are taxpayers,” Mestetsky said. “That’s like saying, ‘Did you ask anyone to help you answer the exam questions?’ ‘Yes, I did, I asked my own brain to help me answer, therefore I asked someone.’”

Intentional timing on bond vote?

The Carmel City Council’s Finance, Utilities and Rules Committee met Nov. 26 to discuss the proposed bonds and the developments they support. The three-member committee voted unanimously on each project to send the items back to the full council with a favorable recommendation.

The council’s next meeting is set for 6 p.m. Dec. 2 at City Hall, less than a month before newly-elected councilors take office. City Council President Jeff Worrell said the timing of the vote on the projects has nothing to do with the upcoming changes on the council.

“These projects come through when they’re ready to come through. It has nothing to do with this (specific) council,” he said. “There’s really no risk to the taxpayers, so these are easy decisions. The assessed value and the projects themselves are all legitimate, great projects, but also developers are trying to get things in line so they can start digging come spring.”