Improving Transparency

at the CRC

A presentation to the Constitutional Patriots

(June 17, 2014)

Our Premise is to Present Documents – not to persuade you.Democracy requires many voices to be reconciled

through discussion. It is politics that seeks to bend the discussion in some specific direction.

A Public Policy Consultant provides a factual basis for the democratic discussion, and must have faith in the process.(Some discussions turn out better than others.)

Without transparency, democracy cannot be effective, and certainly cannot survive.The public must have transparent access to the

facts.

Opening Thoughts on TIFTIF is a useful tool for expanding the local economy,

through economic development and redevelopment. It is valuable in addressing urban blight, re-occupying

abandoned industrial buildings, and stimulating new jobs.Like any tool, it can be misused, sometimes unintentionally.However, when TIF is used to stimulate the local economy

and generate more taxable value, it is almost always successful.

Currently, there is an ongoing discussion about effective public investment, i.e., the Pacers, the Colts, the Palladium, etc.

While those discussions may be valuable, I simply encourage people to consider that TIF was intended as an investment in stimulating taxable economic activity. (Stimulating tax exempt activity was not discussed.)This doesn’t mean it is wrong. It simply means it wasn’t

discussed.

The Role of the Clerk-Treasurer in CRC Transparency: CRC DocumentsProblems/concerns re: CRC financial practices were

voiced prior to 2012, but only addressed as part of addressing the CRC’s “unsustainable” financial practices.$185 million in CRC debt was re-financed in December,

2012;Cl-Tr Cordray was placed in charge of CRC records &

finances. 100,000 - 200,000 pages of CRC documents were presented; Many were disorganized & there was no method to determine

whether documents had been omitted. Ms. Cordray scanned all documents and made them accessible on

Lazerfiche in the form and organization presented.All lazerfiche documents provided can be reviewed on the

Clerk-Treasurer’s section of the Carmel website.

Everyone should read Ordinance D-2108-12

Ord. D-2108-12 was part of the 2012 CRC debt re-financing.“WHEREAS, since 2008, the CRC actively avoided Council

oversight of its finances…”“WHEREAS, since 2008, the CRC committed to over $200

million of obligations representing indebtedness without Council approval…”

WHEREAS IC 36-7-14-3 requires that all of the territory within the corporate boundaries of a municipality constitutes a taxing district for the purpose of levying and collecting special benefits taxes for redevelopment purposes…”

“Any entity that receives grants from the CRC must agree in writing to comply with the Access to Public Records Act, IC 5-14-3-1, et seq…” (applied to 4CDC)

(emphasis added)

Role of the Cl-Tr in Organizing & Managing CRC FinancesThe Clerk-Treasurer serves as a “clerk” and a

“treasurer.” Cl-Tr has no authority to make public policy.Public policy rests with the City Council & Mayor.

CRC financial practices had been cited in SBOA audits for several years.

Cl-Tr has attempted to organize CRC financial records & provide transparent reports;Revenues (TIF & ‘other’);Debt & debt payments;Contracts & other obligations.

CRC has designated 33 ED Areas (TIF)The Hamilton County Auditor actively manages

TIF revenue from 33 ED Areas/Tax Allocation Areas (TIF).All Auditor records are public.Auditor shows Gross Tax & Net Tax for each ED Area.(see Auditor breakdown for 2014)

TIF Revenue is affected by:Assessed value of property;

Appeals of assessed value affect TIF;Non-payment/delinquent payment of property taxes;Legislative actions;Multiple other factors.

TIF & ‘Other’ CRC RevenuesVast majority of CRC revenues are TIF;

$20.3 million in 2013;$22.3 million in 2014;

“Other” revenues cited by CRC staff have not yet been completely explained;~$2.5 million ‘other’ cited by CRC staff, but questions

remain unanswered;Cl-Tr is working toward clarification.

Based on historic documents, previously “TIF Projections” were provided, apparently using common ‘inflators’ over time.Common inflators have not proven historically accurate.

CRC Has ‘Primary’ & ‘Secondary’ Debt ObligationsTwo forms of ‘primary’ debt obligations against TIF revenue;

‘Developer Pass-through’Bond Amortization

Bond amortization is backed by SBT.CRC ‘Secondary’ Obligations have not yet been fully quantified.

CRC ‘Secondary’ obligations have conditions that must be tested to determine whether thresholds have been met. Increased management cost and responsibility.

Village Financial obligation was discovered for the 1st time in December, 2013.

Keystone/Sophia Square obligation has not yet been fully explained.

(Other ‘Secondary’ CRC obligations may exist.)

TIF Revenue: Primary CRC ObligationsReview of CRC finances indicates 2 forms of

‘Primary Obligations.’Debt amortization & “Developer Pass-

Through.”“Developer Pass-Through” was provided to

certain developers, on a case-by-case basis, for the developer to build certain public projects, with TIF used as reimbursement.“Developer Pass-Through” is treated as TIF

revenue which is pre-committed and not available for CRC debt amortization.

ED Areas with Developer Pass-ThroughThe Cl-Tr received the TIF revenue from the County Auditor and

‘sorts’ TIF revenue to manage CRC financial obligations.9 ED Areas designated as ‘developer pass-through’ are (with

2013 TIF): Gramercy ($4.22 in 2013) Indiana Spine Group/Meridian & Main ($11,581 in 2013) 116th Street Centre ($30,634 in 2013) Legacy ($72,869 in 2013) Merchants Square ($202,519 in 2013, now paid off) Parkwood East ($833,508 in 2013) Parkwood Crossing ($1,141,654 in 2013) Arts District Lofts/Sophia Square ($863,015 in 2013) Huntington (questions remain on this moniker, but $54,366 in 2013) 2013 Total ‘Developer Pass-Through’ $3.2 million

2013 Total Carmel TIF was $20.3 million, leaving $17.1 million for other CRC expenses.

CRC Primary Debt Obligations (Bonds)In 2012, the CRC re-financed 21 CRC debt obligations

(see pp B-4 through B-5 & B-10 of Official Statement.)Total of CRC debt re-financed = $196.3 million (p. B-10).

In 2014, additional CRC debt was re-financed.$58.0 million in bonds for the Performing Arts Center;

(Official Statement, p. 4) (other bond re-financed apparently not related to CRC)

Additional CRC debt exists but has not been re-financed.2012 ($196.3 million) & 2014 bonds ($58 million) are

backed by the Special Benefits Tax (SBT).(Recall SBT provisions of Ord. D-2108-12.)Bonds are not amortized through ‘flat-payments,’ so

amortization must be carefully managed.

Revenue Deposit Agreement (RDA)(amended twice) In an attempt to provide more direct management of TIF revenues by

the CRC, a “Revenue Deposit Agreement” (RDA) was approved in 2012; TIF revenue from 24 (of the 33) ED Areas was committed to bond payments

(see Exhibit A). TIF revenues in excess of the bond payment for any year are to be deposited to the

Allocation Fund (for CRC projects). TIF revenue from “Parkwood” was committed to a Supplemental Reserve

Fund (SRF). “Parkwood” nomenclature is currently being clarified.

Other technical clarifications of the RDA are currently being discussed.First Amendment (2013)

Cl-Tr currently requesting technical clarifications.Second Amendment (2014)

Provides that “savings” from 2014 re-financed debt be deposited to the SRF (see Exhibit E).

Cl-Tr requesting technical clarifications.

Apparent Intent of the RDA is to protect against the SBTThe provision for the Supplemental Reserve Fund

(SRF) appears to be intended to provide taxpayer protection against implementation of the SBT.

Cl-Tr is attempting to clarify and quantify the precise financial impact of the SRF and associated SBT risk.Cl-Tr will consult with Council re: public policy issues.RDA terms (especially SRF) will be included in Cl-Tr

financial reporting, once quantified.Several areas of potential conflict with developer

pass-through and/or “savings” of 2014 bond also being clarified.

Cl-Tr is attempting to develop a CRC Comprehensive Debt Management ScheduleWorking with accountants & SBOA to develop a

comprehensive schedule of CRC debt amortization covering all outstanding CRC debts (especially TIF obligations), showing annual payments through full debt retirement of each debt issue (~2038).This effort has not yet included CRC ‘Secondary’ obligations.

Effort will require complete cooperation from the CRC & its staff in order to assure that it is comprehensive.

For reference purposes, in 2013 (first year of Cl-Tr management), debt amortization totaled $16.1 million.Note: $17.1 million was net of Developer Pass-Through

(2013).Note: debt amortization is not ‘flat payment.’

‘Secondary’ CRC Debt Obligations‘Secondary’ CRC debt obligations have not yet been fully

identified nor quantified.Village Financial obligation discovered December, 2013.

Two “secondary” obligations ($4.5 million & $1.0 million) related to Pedcor development/City Center.

Payment requested for July-Dec 2013 interest ($83,709).Public testimony on February 17 indicated that CRC had

previously stated that this debt was not accruing interest.Instead, interest was ‘accruing’ but not ‘payable.’ (interest

went to increased principle payable beginning 2019.)Obligation based on calculation of “excess TIF” from City

Center development.(Impact on overall TIF revenue is unclear at this time, but it

appears that ~$84,000 in interest will be due bi-annually.)

Keystone/Sophia Square Secondary TIF/CRC ObligationKeystone/Sophia Square development appears to be governed

by 8 separate legal documents.Developer committed to a ‘guarantee’ of $200,000/year in

certain TIF revenues (calculation not yet clear).In return, CRC committed to pay for maintenance of parking

garage (estimated at $320,000 to $350,000/yr.)Documents indicate that the CRC “assigned” the maintenance

cost to the City (have not yet located the ‘assignment’ document), but CRC ‘kept’ the revenue for CRC use.

Not yet clear who owes the maintenance costs.Neither Developer, nor City, nor CRC have paid secondary

obligations for 2103 or 2014.Dispute/questions ongoing.Unclear impact on TIF revenues available for debt amortization.

Possible Impact of Secondary CRC ObligationsThe number and amounts of ‘secondary’ CRC obligations

have not yet been determined.No apparent previous financial reports included ‘secondary’

obligations.‘Secondary’ obligations appear to have a mathematical

impact on growth in TIF revenue by committing additional TIF funds to developers as ‘excess TIF’ is created.(Does Village Financial require $168,000/year in TIF? )(Does Sophia Square require $300,000/year in TIF?)

Questions re: how expenses can be ‘assigned’ to taxpayers, while revenues are captured.

Questions re: financial interactions between conditions and TIF availability.

Cl-Tr is working to get a clear understanding of the CRC’s Secondary Obligations…As stated, new facts have been discovered as

research has progressed.Cl-Tr is to report findings to the SBOA &

Council.Council & Mayor have final decisions

regarding the public policies related to CRC finances.

As secondary obligations are clarified, Cl-Tr will work to bring them into the overall CRC Comprehensive Debt Management Schedule.

“Other” CRC RevenueCl-Tr requested an itemization of “Other” CRC revenue on

February 28.First response indicated ~$2.5 million in ‘other’ revenue.Later responses removed $0.56 million & moved it to TIF,

while raising other questions.Questions related to Sophia Square secondary obligations.May 21 documents from CRC indicate additional refinement

of ‘other’ revenue & management.May 21 CRC report shows $48,000 cash balance, assuming

$1.o million in real estate sales for 2014. (awaiting electronic docs)

Cl-Tr has questions pending re: May 21 report.New CRC Director is working to improve CRC financial

management practices.

Final thoughts…CRC has publicly stated that their financial transactions

are ‘extremely complex.’‘Complex’ is not illegal, however, increased complexity =

increased management (cost);D-2108-12 provision re: CRC’s “actively avoided” outside

oversight of its finances;2013 discovery of debt payments previously stated not to be

accruing interest (Village Financial);‘assignment’ of Keystone payment obligation to City while

CRC keeps TIF revenue presents a public policy question;Unclear impact of secondary obligations on funds available

for CRC projects, as well as repayment of primary obligations;

RDA provisions must be clarified for proper implementation.