Saturday, April 16, 2011

No-So Deal Worse Than Even I Thought

I returned home today to find a simultaneously chilling and revolting story in the IBJ, written by reporter Cory Schouten, about the recently approved North of South deal.  Both Gary Welch over at Advance Indiana and Paul Ogden at Ogden On Politics cover Schouten's article extremely well.

Regular readers of this blog know I have been following closely, the details of this now-approved project since it crawled out from under a rock back in October (in particular, see my blog entries  "North of South - Details of Proposed Deal",  "MDC To Vote On No-So Deal Today", "No-So Field of Dreams - Lie & They Will Build It", "Council Considers No-So Deal Tonight - Hold On To Your Wallets" & " No-So Bonds - Do They Meet Standards Set By Law?")

Even trying to keep up with this lousy deal as it snaked its way through the process, I was stunned to read a couple of new 'details', expensive to the taxpayer details, in Shouten's excellent report.

One is that the value of the land that Lilly is 'contributing' to the project actually weighs in at $2 million, not $15 million.
The city also gives credit to Lilly for contributing the 15-acre site on which North of South will be built, valuing the property at $15 million. For tax purposes, though, the current assessed value of the 12 parcels set for development is $2 million.

Another is that the $15 million the City paid to Lilly to donate to the project, was in fact, not repayment of a loan long overdue. Rather, it was an early payment due in 2020, on money that Lilly was contractually obligated to put up for the rerouting of Kentucky Avenue around their manufacturing plant on the near southwest side of town. They had to put up that money because the property taxes used as collateral for the bonds the city floated for the project were inadequate to cover the bond payments.

City officials agreed in 1989 to vacate a portion of Kentucky Avenue and spend $36 million to widen surrounding roads to accommodate an expansion of the Lilly Technology Center.

The city sold bonds backed by property tax revenue on the property, but starting in 1997—thanks in part to a new round of abatements, Kintner said—the bond payments due exceeded the property tax payments, triggering an agreement for Lilly to cover the shortfall.

Lilly paid about $13 million toward the bond payments over the years, and would have been entitled to reimbursement from the city of the remaining balance after the original bonds were retired in 2020.
And, last but not least, I am beside myself with disgust at the revelation that the developer will get to sell of pieces of the project and pocket profits on those pieces, while leaving the taxpayers holding the bag on unprofitable pieces.
Buckingham could start cashing in profits from the project by selling individual components before taxpayers are paid back in full.


The hotel, office and apartment phases each are assigned a “base release price” at which the bonds for that portion are considered satisfied. For instance, the release price for an office component starts at about $2.4 million (and falls as payments are made on the bonds).

If the developer can sell that portion, it can pocket any profit above the release price. A potential consequence of the arrangement is, taxpayers could get stuck holding underperforming portions of the project while the developer cashes out of profitable ones.
Just to remind everyone - Mayor Ballard keeps repeating that his administration values transparency.  When they continue, time after time, to withhold important information on deal after lousy deal, then there is NO transparency in his administration.  Its called lying by omission.

Now, fellow taxpayers, you and I are underwriting a deal far, far, more risky than anyone ever mentioned.

19 comments:

Advance Indiana said...

This is what confuses me, Pat. Mickey Maurer is a very smart businessman. He gives his reporters like Schouten the time they need to get to the bottom of these deals. When you see the results of his work, you find yourself scratching your head why Maurer endorsed this project on his editorial pages. He's also a banker and he would never lend money to a project like this, but he seems to think it's okay for taxpayers to assume risks private lenders would never risk for the exclusive benefit of private developers. They use tax-exempt bonds to borrow the money cheaply and then they don't even mark-up the interest payable by the developer to help offset the investment risk. The Lilly deal was never explained the way Cory explained it in his article today. That deal was done more than a decade ago. People have no idea what is going on with city finances. Let's also not forget that any property tax revenues paid in the future on this development will get captured by the TIF district so there is no foreseeable benefit to the community at large.

Had Enough Indy? said...

The property taxes generated from this project for the next 10 years, will be used to offset the amount owed back to the City by the developer. IF all goes well, it will amount to about $12 million.

One thing Schouten didn't go into, but continues to puzzle me, is that the bonds floated by Deron Kintner of the Bond Bank, will be 30 year bonds that carry a penalty if pre-paid. The deal, as outlined to the MDC and the Council (and again not touched on by Schouten today) required the developer to get financing at the 10 year mark for the value of the outstanding bonds. The money the City gets from the developer just might not get used to pay off those bonds, given the penalty Kintner is constructing.

Why Kintner retains his job is beyond me.

Anonymous said...

Pat, do you have any information on why the DCHS teacher and softball coach Mandy Jacobs (may be mispelled) was fired?

Advance Indiana said...

That was probably the plan all along, Pat. Indy has a history of never paying off old bonds. Look at all of the refinancing deals that occur. We owed more on the RCA Dome when it was imploded than it originally cost to build if you back out the big donation the Lilly Foundation kicked into the project. Old debt just gets rolled into newer debt.

Paul K. Ogden said...

AI,

Also it was reported by Mary Milz that we owe more on Conseco now than we originally borrowed to build the place.

Paul K. Ogden said...

How did Kintner get his job at the Bond Bank? Doesn't he owe any duty to the city to get us the best deal?

Had Enough Indy? said...

anon 7:54 -- Can anyone in the Decatur community give some definitive information about the status of Mandy Jacobs?

Had Enough Indy? said...

Gary - the Hoosier Dome cost $55 million in bonds to build. The day it was imploded, taxpayers were on the hook for $70 million.

It is worse than old debt getting rolled into new debt.

Winnie Ballard talks about educating individuals about financial literacy. Maybe she needs to start with Greg.

Had Enough Indy? said...

Paul - as for Conseco -- and you know I don't want to give any slack to the Ballard administration -- but -- I'd like to see those numbers. I looked into it last year and thought we were paying those debts. I know I could easily be wrong - given the irresponsible financial behavoior we see in City government.

Had Enough Indy? said...

Kintner was Kevin Taylor's #2.

I liked Kevin. Ever since he left, the Ballard administration has been full tilt boogie on hair brained schemes and deals to benefit the well-connected at the expense of the taxpayers. Selling assets -- floating loans with property tax dollars -- buying garages without buying them....

Next stop ???? more hair brained schemes to raise taxes, increase rates and cost of living, and steal money from the next generation to pay for our stuff today.

I must again implore Winnie to teach Greg about financial literacy.

Advance Indiana said...

Toby McClamroch had Kintner installed at the Bond Bank. He worked as one of his flunky attorneys at Bingham-McHale before joining the Ballard administration. Toby wanted to make sure Bingham got its share of the city's bond business. Kevin Taylor came from AIG, which sold that insurance policy to Brightpoint, which in turn was used to mask Brightpoint's losses at the time. Kevin steered business to Nat City, which rewarded him with a job just like it did for John Dillon, one of his predecessors.

Advance Indiana said...

That's City Securities, not Nat City.

Paul K. Ogden said...

Pat,

Email me. My computer crashed and I lost my emails. Have a new computer though but need to get my email address back.

Paul K. Ogden said...

I'm not surprised thaqt others got Kintner in his position. Let me rephrase. Who technically has the power to appoint the head of the Bond Bank. Is it the Mayor?

Paul K. Ogden said...
This comment has been removed by the author.
Anonymous said...

Perhaps those wanting to know the status of Mandy Jacobs, DCHS teacher and softball coach, can talk to Athletic Department Consultant Dave Rather. He might earn some of his $60k salary addressing this situation.

Had Enough Indy? said...

I needed to delete that last comment unless substantial proof can be provide.

Had Enough Indy? said...

An update on Mandy Jacobs from WISH TV -- http://www.wishtv.com/dpp/news/local/marion_county/decatur-coach-resigns-amid-inquiry

Anonymous said...

From the fox 59 website in regards to Mandy Jacobs: "District spokeswoman Robin Gregory said there is no district-wide policy about teachers texting during the day or teachers texting students."

Um....if there "is no district-wide policy about teachers texting during the day"....then WHY DID SHE RESIGN or be FORCED TO RESIGN? We all know that there is much MUCH more to the story than being told. According to the district spokesperson, there is no policy prohibiting what she did!

Perhaps it was the content of these messages? Perhaps the rumors running around are true?

First, what's wrong with these people in positions of authority from the school board all the way down to the superintendant? Drunk driving, spending money like it's water, no accountibility, super secret dealings, and yes in all probabilities inappropriate texting....

What makes me more sick is that 15,000 residents of a community put up with it. You keep voting this board back in. You have a board member that doesn't even live in her district let alone the township; yet you all let her and them get away with it? Look at the school board meetings; NO one goes. maybe 4 or 5 at each meeting. 15,000 people live in Decatur Township. WHERE'S THE ANGER? SOMEONE HAS TO CARE!