Abatements - Scary Loopholes Need Closing

Documents of the City of Indianapolis' clawback of abated property taxes from Navistar, obtained by Cathy Burton on behalf of the Marion County Alliance of Neighborhood Associations, expose a scary loophole in the law and policies governing Abatements that simply must be closed. The $5 million clawback agreed to in the settlement, also raises questions of whether the City has an inherent right to keep the entire check, or if it should be distributed in the same manner as property taxes would have been collected, had they not been forgiven or abated.

The City routinely enters into tax incentive agreements with businesses. These are called 'abatements'. Abatements run from 5 years to 10 years in length and forgive a fraction of the property taxes that would have been due on an expansion of the business or creation or retention of jobs in Marion County. Abatements are proposed by the Mayor's Economic Development team and passed or rejected by the Metropolitan Development Commission (MDC). Notice to potentially interested parties is limited to the two weeks between the two MDC decisions - the latter of which is preceded by public comment. If an abatement is proposed within a Tax Increment Finance District (TIF District), then Council review is also required.

These abatements routinely (for Marion County, not necessarily other Counties) contain what is termed 'clawback clauses'. These clauses require the return of the abated taxes should the goals of investment or jobs not be met by the business.

It turns out that there is no state law or local ordinance or even City policy addressing how funds returned as clawback settlements are collected and distributed.

Back to the scary part of the Navistar settlement with the City over the size of the clawback funds. The agreement sets the amount at $5 million - a compromise between the City's position that all $27 million should be returned and Navistar's position that it is absolved of all need to repay abated taxes due 'factors beyond the control of the Applicant'. The settlement agreement was signed on November 30, 2009, by Jonathan L. Mayes (Chief Litigation Counsel, for the City) Eric Tech (President, Engine Group, for Navistar) and Billie Breaux (Marion County Auditor). The scary part is that the agreement originally intended for Navistar to cut a $5 million check made payable not to the City, but to Indianapolis Economic Development, Inc. (IEDI). Instead, reference to IEDI was scratched out with a pen and "City of Indianapolis" or "To the City" was scratched in by hand with the initials of the three signers also scratched in. Here's what the original agreement stated in Section K of the "Recitals" and Section 1 of the "Agreement":

K. Navistar believes the Auditor is a necessary party to this Settlement Agreement. Without agreeing that the Auditor is a necessary party and without prejudice to its ability to have the settlement payment described below directed to Indianapolis Economic Development, Inc. ("IEDI"), the City is not opposed to the Auditor's inclusion as a party hereto.

1. Settlement Payment and Satisfaction. Navistar shall pay a total settlement amount of five million dollars ($5,000,000). The settlement amount shall be paid by Navistar within fourteen (14) days of the complete execution of this Settlement Agreement, by check made payable directly to IEDI (defined above). The City agrees to accept payment of this settlement amount to IEDI in full, complete, and final satisfaction of any and all repayment of abatement savings and any other damages or liabilities relating to the Resolutions, the MOAs, and the Abatements arising with respect to the Tax Years.

WOW !!! What if the agreement had gone through as originally drafted? Who would have know that a $5 million check had been passed from Navistar to IEDI - avoiding that messy part where the City actually collects the back taxes and the City-County Council appropriates it?

That was close. Now, to its credit, the City decided not to go through with its original intention. The last minute is as good as any minute to change course from this huge mistake. Troubling enough as is. But word is that previous claw back payments may indeed have gone directly from the abated businesses to non-City recipients. I have not seen documentation of that, but that is the word I am getting. All claw back funds from the Peterson and Goldsmith administrations added together are said to amount to $700,000 and were not necessarily deposited into the City's coffers.

There is a glaring lack of State Law regarding abatement clawback funds.

There is a glaring lack of City Ordinance regarding abatement clawback funds.

There is a glaring lack of City policy regarding abatement clawback funds.

If funds do not have to be received by the City and can go directly to outside organizations due to lack of law, ordinance or policy, what is there to prevent the clawback funds from being deposited directly into a personal bank account?

So, the scary part is that abatement clawback funds do not have to be directed to publicly accountable governmental units.

Also needing definition, is who should be getting these monies in the first place. Clearly, the abated property taxes would have gone to the school district, library, health & hospital corp, and the City and County, among other governmental units, through a formula set for that taxing unit in which the business is established. It seems to me that the clawback funds should be distributed by that same formula. Instead of the City getting and spending the entire amount, they would receive roughly 20% of the funds. Big difference. In the case of the Navistar clawback funds, the Metropolitan School District of Warren Township would stand to get over $2.5 million, if the funds were distributed according to the property tax distribution formula.

Because the Navistar Settlement Agreement was amended at the last minute, the City-County Council will have to appropriate the funds. Mayor Ballard wants $1.5 million to go to the Indianapolis Convention and Visitors Bureau (ICVA) and $3.5 million to go to IEDI. It seems to me that there are more pressing needs in Indianapolis and whatever funds are expended by the City should be sent their way. The Parks budget has been slashed mercilessly by Mayor Ballard. He won't stand up to the Chamber for fully funding the Department of Code Enforcement with fees - maybe some dough spent there would work for everyone. There is a study group investigating how to get more money for City street and sidewalk repair. This money would be a good faith effort to spend public funds already in hand before pulling more money out of our civic assets or purses.

It is expected that the Council Proposal for appropriating the funds will be introduced at its February 1 meeting. I'll be letting you know to which committee it will be assigned once the Council agenda is published.

Meanwhile, Indianapolis, Marion County, and likely other municipalities in Indiana, need serious loophole darning done to regulate receipt of abatement clawback funds through a transparent, public process.