Schedule of Hearings for City's $98 Million Loan (Plus $45 Million Incidentals) for No-So Project

The sweetheart deal proposed for the developer of the North of South project, is working its way simultaneously through the Metropolitan Development Commission and the City-County Council.

See my October blog entry for more details of the project ("North of South - Details of the Proposed Deal"). Briefly, the deal is this: the City will float a bond up to $98 million, loan the No-So developer up to $86 million, pay the first three years of interest only payments from the proceeds of the bond, put in $9 million of infrastructure, pay Eli Lilly $14 million from an old loan on the Harding Street TIF (which Lilly will give to the developer), turn over its $5 million in proceeds from the area being designated a 'Certified Technology Park' to the developer, and help the developer pay the loan back by applying 100% of all property taxes collected in the area for 10 years. This is the project that was rejected by all financial institution(s) approached by the developer. The City would get a first mortgage on the development, but Eli Lilly would retain ownership of the land - so if there is a default by the developer, the City would become owner of partially completed buildings and have to pay the bonds off from property taxes collected elsewhere in the consolidated downtown TIF.

The MDC will take up the issue at its Economic Development Committee meeting at 8:30 am, Wednesday, December 1, 2010 (room 2001 of the CCB). They are expected to consider and vote on the deal that afternoon at 1:00 pm at their regularly scheduled MDC meeting (public assembly room of the CCB). The rezoning of this property will not be heard until December 15. The reason the zoning is claimed not to be required prior to voting on the deal, is that there is no abatement involved. Because Mayor Ballard's crew simply decided not to call the 10 year, 100% return of property taxes, an 'abatement', allows them to slide on the laws regulating such things, and to avoid protections built in for the taxpaying public.

The Memorandum of Understanding underlying this deal is posted here (you will have to put in a google account to access - so if you prefer, just email me at hadenoughindy@gmail.com and I'll send you a copy directly).

The Council has already introduced Prop 292, and assigned it to their Economic Development Committee, which next meets on December 15, 2010 (5:30 in room 260 of the CCB). The full Council would presumably take it up at its December 20 meeting - just in time for opening presents by Lilly and the No-So developer, but not the taxpayers of Indianapolis.

North of South - Details of Proposed Deal

The North of South development is the next big thing to be promoted by City officials. Presumably their timetable had been predicated upon the completion of the parking meter deal by now.

North of South is anywhere from 10 to 14 acre development proposed for land owned by Lilly and just north of their main campus. A rezoning petition is in process, and is scheduled to be considered by the Metropolitan Development Commission on November 17.

Just yesterday, the economic development committee of the MDC heard for the first time, details about the proposed deal between the City of Indianapolis (who would finance the lion's share of the project), Buckingham Companies (who would develop and own the project), and Eli Lilly (who developed the plan and who will continue to own the land upon which the development would occur). The Commissioners requested that their vote on this proposed deal also be postponed to November 17. At the moment it is scheduled for November 3. Should the MDC approve the proposed deal, it would move to the Council for its verdict. The City hopes to be floating the bonds before the end of the year.

I made an open records request for the proposed deal, and received a document titled "Memorandum of Understanding As of September 27, 2010 With Respect to North of South - Mixed Use Development". I have posted that document. (you will need to sign in with a google account to access it -- if you just want me to email it to you, please send me a note to hadenoughindy@gmail.com) This document alludes to two attachments, neither of which did I get. I have requested those, and when I get them, I will post those as well.

Between the presentation at yesterday's MDC committee meeting and the MOU, here are the details of the proposed deal.

Two years ago, Lilly began planning for the undeveloped ground it owns north of its main campus. It currently serves as parking lots, primarily. One year ago, the City entered the picture, and has been working with Lilly and Lilly's chosen developer, Buckingham Companies. Lilly sees development of the area as a means of creating a link from downtown to the southeast quadrant and as a way to create a sense of place that is 'interesting and energizing', which would help them attract and retain talent. The Lilly representative at yesterday's meeting said they had chosen Buckingham because of their commitment to Indianapolis, and their 'strength both financially and in developing this kind of thing'.

The exact square footage, like the acreage of the project, shifted slightly, depending upon who was talking. Therefore, I will stick with the MOU and the presentation yesterday of Deron Kintner, Executive Director of the Bond Bank, and evidently the City's spokesman on the deal. He relied upon a PowerPoint presentation, which I have also uploaded.

The project includes:
320 apartments
150-152 room hotel
15,000-18,000 square feet conference center
30,000-40,000 square foot retail & restaurants
10,000 office/lab space
a new YMCA
sustainability garden/city park with significant public art
the MOU mentions 'parking garages' as well.

The total cost would be about $163 million. ($155 million for project costs and $8 million for capitalized interest)

The City would float a bond large enough to generate $86 million in cash for the project, plus $8 million to cover the first three year's payment on the bond - those three years being interest-only payments. More on how the bonds would be paid off later.

The City proposes spending $9 million from the consolidated downtown TIF on infrastructure improvements - roads, sewers, sidewalks, and the like.

The City would also pay $14 million back to Lilly for a loan Lilly made on the Harding Street TIF in 1991. This money would become Lilly's cash contribution to the project. It also will be allowing the development to occur on its land, valued at $14 million - but would retain ownership of the land.

The YMCA is expected to cost $18 m, most of which was said to be coming from a 'significant donation' from the Lilly Foundation.

Buckingham has to come up with its own cash investment of $7.5 million, plus about $6.25 million to be set aside as insurance of one year's bond debt payment. The latter could, instead, be guaranteed by a letter of credit or similar instrument, instead of with cash.

The City considers the total contributed by the Developer and Lilly to amount to $41.75 million - but it could be argued that the $14 million for the land isn't really a cash investment, the $6.25 million to be set aside for one year's debt payment isn't cash if its just a line of credit, and the City is providing the $14 million cash to Lilly - which would drop the actual developer/Lilly investment to $7.5 million. In addition, there is the $18 million for the YMCA, evidently to be supported by a Lilly Endowment grant to the Y.

More investment money is expected from the State. Indiana Economic Development, Inc., is supposed to give $6 million to the development. The 10,000 square foot office portion of the development, is anticipated to contain within it, a wetlab, which is evidently being used as the hook to get the State to designate the entire project a 'Certified Technology Park'. CTP designation allows income, sales, and use taxes that usually go to the State, to go to the City instead. This could add up to at least $5 million for the City, who through the MOU, has agreed to send it to the developer for either project development funds or repayment of the bonds.

The bonds are to be repaid by the developer within 10 years, unless the agreement is extended at that time. Except, significantly, ALL property tax money generated by the project will be used to pay down the amount of money that the developer has to come up with. The first three years payments are interest only, and will come from the $8 million portion of the bond mentioned earlier. In year 4, the developer's payments begin. The City, in its presentation yesterday to the Commissioners, and in its statements to the press, have downplayed the contribution of the property taxes to the repayment of the bond. These funds should definitely be included in the cost to the City, just as Kintner included the abated taxes as costs to the City in other developments he used for comparison. Kintner estimated the property taxes to amount to $1.7 million per year, which over 7 years, amounts to just under $12 million.

Under the proposed agreement, the City would get the first mortgage. The Lilly representative said yesterday, that Lilly would get the second mortgage on the project.

While Kintner is trying to present the proposed development as a $155 million deal that costs the City only $9 million, I would beg to differ. This proposal would cost the $9 million for infrastructure improvements, the $12 million in property taxes that would be applied to the bond payments, the $5 million for the Certified Technology Park designation, and the $14 million cash to repay Lilly for the loan back in 1991. That comes to $45 million. And, that is only if the project is a success. If it is not, then the City and its taxpayers will be on the hook for the bond payments and own a partially completed project that will undoubtedly need another infusion of cash. The risk is all on the City here.

In addition, the City will use Buckingham Construction as its construction manager for the City's infrastructure projects, with City paying Buckingham an undefined amount of fees for those services.

Of interest is one item in the MOU and another mentioned yesterday, regarding Wellpoint, which leases a building abutting this area. Kintner mentioned that their lease is up in 2015, and the City is already talking with them. The MOU mentions that the City is 'obligated' to build Wellpoint a parking garage.

It never stops, does it?

MDC Public Hearing on TM Miller Enterprises Abatement

The Metropolitan Development Commission will hold its public hearing regarding a proposed abatement for 450 E. Market Street on July 1 - 1:00 pm in the Public Assembly Room of the City-County Building.

This is a continuation of the effort by the Ballard Administration to craft a complex deal with TM Miller Enterprises that would leave the City to pay the loan for the acquisition of both the 450 E. Market site and the garage just north of it. The proposed abatement would be for 10 years and amount to about $6.7 M. In a twist, TM Miller Enterprises would return the abated taxes plus $100,000 per year to purchase 600 spaces of the 1677 space garage.

A number of citizens spoke against the purchase of the garage during public comments before the MDC on June 3rd.

I am still awaiting information from the City regarding their authority to use future market value instead of current fair market value of the garage in determining the fiscal propriety of the purchase. In addition, I still await information from the City regarding their authority to make the purchase while avoiding the requirement of a public hearing on the purchase AND review by the City-County Council.

Although the abatement is the central feature that makes the whole deal work, it is not yet finalized and cannot be finalized until the public has had a chance to give input. That, as mentioned above, is set for July 1 at this time.

Public Input Impeded

On a very fast track that precludes extensive or knowledgeable input by the public, the Ballard Administration is pushing forward a complicated proposal to assist private developer Tadd Miller redevelop the old Bank One Administration Building at 450 E. Market Street.

Reported today in the Indy Star by John Ketzenberger and on the IBJ website by Cory Schouten, the deal raises many many questions.

The deal must be approved by the Metropolitan Development Commission at a hearing tomorrow at 1:00 pm (Public Assembly Room, City-County Building). At 11:00 am, the MDC's Economic Development Committee will meet and discuss the proposal. That committee will meet in room 2160 of the City-County Building, should you wish to attend. It is not clear at this point, if the City Council would also have to vote on the proposal, at least as far as appropriating the moneys.

The deal appears to be that Miller, through his TM Miller Enterprises, will arrange a loan to purchase the Bank One Administration Building which includes a surface parking lot, and a 1600 space parking garage across the street, for $18.5M. The City would make the payments on the loan and become the owner of the parking garage. The City would also grant a 10 year tax abatement totaling $6.7M. Miller would have 18 months to find investors to come up with an anticipated $65M to turn the building into 600 market rate apartments and retail spaces. If that timetable is not met, the City would become the sole owner of both the garage and the building - presumably still paying on the loan.

More complications are that Miller would lease 600 of the parking spaces for $100,000 per year plus the amount of the tax abatement for that year. Confused yet?

The revenues from the parking garage would be the payment stream from which the loan would be repaid.

This begs the question: if the parking garage revenues can pay for the loan and refund the tax abatement, why does Miller need the City in the picture at all?

Ketzenberger brings up the strong downtown market for apartments and suggests that taxpayer groups might balk at abating any more apartments.

Here's how strong the Downtown apartment market is: Although more than 750 units have been added since 2000, the vacancy rate remains the same -- 5 percent. The monthly rental price has increased from about 90 cents per square foot to $1.08 in the past eight years. And rental rates at two major developments, The Waverly on South East Street and the Cosmopolitan on the Canal, are $1.35 per square foot.
"That shows there is a lot of demand," Sweeney said. [Sweeney works for Indianapolis Downtown, Inc., which compiles occupancy numbers for downtown spaces]

Schouten concludes his article with:

Yet the city's abatements and investment in the former bank properties suggest a deal to redevelop the 4-acre MSA site still could be quite pricey for taxpayers. And if the current project doesn't materialize, the city would be left holding even more downtown real estate and paying down an $18.5 million loan.

Why is the City getting involved in this deal? If apartments already represent a strong market downtown, why not let the market work? When, exactly, will downtown be self-sufficient?

As an aside, TM Miller Enterprises donated $1000 to the Ballard Campaign on September 30, 2008. No campaign finance reports for 2009 have been filed. Those are not required until January, 2010.

What does the public think? Does Mayor Ballard really care? If so, you might think that this juggernaut would be a tad slower than coming to the public's attention the day before the decision is made.

[added 6-2-09] I have been informed that no public comments will be allowed on the topic of the purchase agreement with Mr. Miller as no public hearing is required. The abatement will be taken up as a public hearing at a future MDC meeting, likely in two weeks. I have also been informed that the City-County Council has no oversight on the agreement or the loan or receipts and payments accrued from the garage. So, poof ! Here's $18.5M more debt for Indianapolis secured not only with potential receipts from this garage, but backed up, if needed, with actual receipts from other City-owned garages. Public input is not desired.