TIF Study Commission Off To Rollicking Good Start

You simply must wonder what wrong turn your life took when you find yourself energized by the geeky, wonky, TIF-er-ific lecture/discussion that happened at last night's opening TIF Study Commission meeting.  That is the situation I find myself in this morning.

WCTY, our government channel was present, capturing it all for your viewing pleasure.  As of this moment, it has not been posted, but I'll post a link as soon as I see it go up. [Edited to add link to the March 27 meeting - click here]

The TIF Study Commission falls out of City-County Council Prop 70, which set its composition and broad agenda.  On the panel are Councillor Ryan Vaughn, Controller Jeff Spaulding, Councillors Steve Talley and Brian Mahern, Auditor Billie Breaux, Bond Bank Executive Director Deron Kintner, MDC President Ed Mahern, and State Senator Bill Crawford.  Kintner was absent last night and sent a 'proxy', but I am afraid I did not get her name.

Missing last night was the taxpayer perspective, which left me squirming in my seat and my head flooded with my own internal comments.

Much information was thrown out there.  Bruce Donaldson, Attorney with Barnes & Thornburg, gave a overview of what the law allows TIF to be set up for and how TIF funds can be spent as well as the process whereby a TIF district is legally established.  Deputy Mayor Michael Huber was up next, going through the TIF philosophy of the Ballard administration.  Jeff Spaulding joined in for more of the administration's perspective on why use a TIF over other means of economic development.  Taking up the rear and pretty much rushed due to the late hour, was the Director of the Department of Metropolitan Development, Maury Plambeck.  Plambeck went through examples of the variety of TIF districts we have in Indy.

More detail is assured for future meetings.  So, let your geek flag fly !

Here are some of my observations from the cheap seats.

Billie Breaux brought up one of the great points last night - since you can create TIF districts to help spark redevelopment or for general economic development - why do we seem to be doing mostly the latter?  This really struck me as pertinent.  There is evidence that using TIF for economic development only moves economic development from where it would occur organically, to a location of the government's choosing and profits a developer of the government's choosing.  It does not accomplish much more.  But, trying to turn around a truly blighted area, is a different matter.  We can identify and prioritize, if you will, the areas most in need of a catalyst to improve a blighted area.  For the rest, we all want development in our neighborhoods, and prioritizing is more open to political interpretation.

I mentioned it earlier and it bears repeating, missing was the taxpayer perspective.  A number of platitudes were uttered last night that we have all heard before.  They are the 'promises' of TIF districts that do not necessarily come to fruition and for which TIFs are not necessarily the best approach. 

Spaulding mentioned "a rising tide lifts all boats" - that is true up to a point.  The never ending TIF district, however, has built around it an imaginary retaining wall - so the 'tide' cannot escape to outside areas to lift the 'boats' found there.  Huber opined that expanding the consolidated downtown TIF to nearby neighborhoods is way to share the wealth within that district.  I say, pay off the bonds, dissolve that TIF and let us all partake in the wealth.

On the same topic, Huber said that the development in a TIF would not have happened without the TIF, so it benefits all taxpayers.  While that is debatable on its face, by ending a TIF you would definitely help all taxpayers.  It might be a few dollars per taxpayer, but the aggregate it stunning.  The TIF districts in  Marion County take in over $100 million a year in property tax revenue.  If those TIF districts were retired, it would set off some critical dominoes.  First, the tax rates throughout the County would drop.  This makes Indy more attractive to homeowners and business owners alike.  It also means that fewer people hit the property tax caps.  When fewer people hit the tax caps, more money flows to the taxing units like the schools, the library, IndyGo, and the City.  When more money flows to the taxing units, more services or higher quality services can be provided.  This increases the quality of life in Indy, again improving the attraction of our city for people to live and work.  And, lets not overlook the impact on the taxpayers for those property tax savings.  For some, it means a better chance to keep their homes or business, and for others it is disposable money left in their pockets that can be spent on restaurants or new equipment or new cars, etc, etc, etc.  Retiring TIF districts can fulfill one of the promises made when the TIF was created - that it will benefit everyone.  When you do not retire the TIF, it only benefits those within the district, since the rest of us are footing the bill for the necessary public services that they still enjoy but do not pay for.

Mentioned by Donaldson was the idea that the tax revenue coming from a TIF district before day 1 of the district, will continue to flow to the schools and library, etc, after the TIF is formed.  This is called the 'base'.  He noted one readjustment as the tax caps were initiated that allowed a new calculation for the 'base' of our TIF districts, so that the new laws would not impede the City's ability to pay off existing bonds.  He did not mention that this readjustment is done annually.  I have blogged on the base and the annual calculations that the Auditor must submit before (see "TIF Districts - Who Knew The Base Could Drop?") .  From 2010 to 2011, these re-calculations caused $43 million in property value to be moved from the base, into the TIF revenue.  That was likely due to the drop in property values caused by the bursting housing bubble and recession.  But, if you look at the forms, there is no way that the value will be returned to the base once the recession is over.  The forms leave you with a choice - either stick with the same base as last year, or let it drop to recover more money to pay the bonds of the TIF district.

So, dear reader, if you've gotten this far, I thank you for your perseverance.  Its geeky, nerdy, wonkish stuff to be sure.  But, TIFs can be a promise for a better future, or a drain on the rest of us, or a slush fund, or all simultaneously.  As taxpayers, as citizens of a City we all want the best for, we owe it to ourselves to get at least ankle deep in the topic and lend our guidance to our elected officials as they try to navigate the best course for TIFs in Indianapolis.

Indy Deserves Better

Last night I attended the City-County Council Rules committee for the budget presentation portion. I thought I'd stay to hear the latest information regarding the proposed parking meter deal. Bad idea. Deputy Mayor Michael Huber and Bond Bank Executive Director Deron Kintner were spinning so hard, its a wonder they didn't drill a hole in the floor and fall through.

Let me back up a bit, run through some of the more frustrating spins, then offer some common sense.

You can view this performance for yourself by visiting the Channel 16 archives for the Rules Committee (click here) and clicking on the "Video" link for Sep 28, 2010. They have a quick link to that portion - Prop 229. Urbanophile blogger, Aaron Renn, was up first, at time stamp 20:00. Huber and Kintner first appear at time stamp 58:00.

The proposed 50 year lease of our parking meters to ACS (prop 229; proposed lease agreement) calls for an investment by ACS to update the meters, a $35 million up front payment to the City, and shared revenue stream for the 50 years. The cost of replacing some, if not all, of the current meters with new technology has been estimated at $8-10 million. The IBJ estimates that the City would receive $400 million over the course of the lease, but ACS would collect as much as $1.2 billion (yes billion). Simple math translates that to $8 million per year to the city and up to $24 million a year to ACS. The City would double parking rates immediately, and tie future increases to the cost of living. In addition, the City intends to increase the number of meters immediately by 100-130.

Renn made his points clearly, with an easy to follow flow of logic. There was a quality back and forth with the Councillors. All was well for the viewing public who hoped to gather concrete information with which to assess the proposed plan.

Huber's presentation was difficult in so many aspects. I got the impression that he had certain phrases, certain 'winning' points, toward which he felt compelled to steer his statements. Such phrases and 'winning' points would include "be flexible and adapt to change", never agree that there is a 'penalty' of any kind in the agreement, "we haven't raised parking rates in 35 years", "many of our parking meters are occupied by folks from out of town", "we become less reliant on property taxes", the only alternative to the ACS deal is nothing at all, and only compare the revenue stream from the ACS deal to what we currently get. All of these are debatable points, to say the least. But, Huber seemed drawn to them as his exclusive library for last night's discussion.

The 'penalty' point got quite a bit of time, so let's follow that one in a bit of depth. In his amazing blog entry on this proposed deal ("Indy's 'Son of Chicago' Parking Meter Lease to Be a Disaster for City"), Renn made this point:

7. The vendor automatically gets the right to any new meters, but the city has to pay to remove any meters. In the Chicago deal, the city has to negotiate with the existing vendor for new meters outside the existing concession area, but is free to take its business elsewhere if the vendor won’t match what a competitor would offer. In Indy, any new meters are automatically enrolled in the new deal. (Section 7.7) I didn’t see where this was limited to the four specified zones, so it might in fact apply to any meter in the city.

However, if the city removes a meter, they have to pay a meter removal fee. In the first year, this is $15,400 per meter in Zone 1. I didn’t see any provision for offsetting adds and removes, meaning if the city adds three meters and removes one, the vendor gets the three new ones automatically and the city is still on the hook to pay for the one they removed. What’s more, the city is also on the hook for any lost parking ticket revenue the vendor would have gotten off that space too.

Looking at schedule 4,"Methodology for Calculating Certain Concessionaire Compensation" (page 132 of the pdf), one finds a complex looking formula for calculating the compensation due ACS if a parking meter is permanently removed. But it boils down to adding the expected future revenue from the meter over the remainder of the lease to the expected future revenue from parking tickets at that meter over the remainder of the lease. The cost of that meter and its installation by ACS is not included in the calculation. The fraction of the $35 million up front fee to be paid by ACS to the City which can be attributed to that meter, is not included in the calculation. It is all based upon future revenues expected for that meter. This is what Councillor Joanne Sanders and others are calling a 'penalty' for the removal. This is money that the City would owe to ACS to compensate them for the removal of the meter.

But, Huber could not say that out loud. Instead he claimed over and over that it wasn't a penalty. According to Huber, the compensation is reimbursing ACS for the purchase and installation of that meter -- besides, the city would not hand ACS a check, they would deduct it from the City's portion of the revenue -- therefore it is not a penalty. What gibberish. The compensation formula is NOT derived from reimbursement for funds already spent. And despite the tortured logic, it is still a loss to the City. Then he takes things further and says we would be giving up that revenue anyway, if the City didn't do the deal with ACS, covered the costs itself, and then pulled a meter off the streets. NO. There is a difference between not getting future revenue, and paying somebody else the amount of that future revenue. And if Michael Huber really doesn't know that, then maybe he shouldn't be the Deputy Mayor for Economic Development.

Perhaps worse, was the handling of an alternative approach to this deal with ACS. The only alternatives offered were to do nothing at all, or to float a bond to cover the upgrade and installation of the meters. Bond Bank Executive Director, Deron Kintner, took the bonding issue on. He mentioned a number of reasons why this would not be a good idea. He said that the city now employs 6 people to tend the meters, but we'd have to increase that number 10 fold if we undertook the meter expansion and upgrade ourselves.

But what really got me were the numbers he popped on the screen to demonstrate that the City would take in more money through the ACS deal than if the City made all the improvements itself. (see slide 8 of the presentation).

The cost of the meters is $8-10 million to ACS, but the City would, for reasons inconceivable to me, have to float a bond for $25 million. Kintner compared this figure with the proposed $35 million up front fee.

Then he looked at the net present value of the ongoing cash flow. He never described what was considered in deriving that figure. The number is too low to account for a full 50 years of revenues to the city, unless a high rate inflation were assumed. He said that the net present value of the cash flow in the ACS agreement is $32 million, but only $29.8 million if the City goes it alone.

But, lets look at the revenue stream itself. The IBJ estimates that the deal could give the City as much as $400 million over 50 years. That comes to $8 million a year. Their estimate of up to $1.2 billion in revenue to ACS is $24 million a year. If you add those two numbers, you come up with $32 million a year, on average, for the entire cash flow. But, ACS is keeping the lion's share of that money.

If instead, all the money came to the City, even after you subtract $3 million a year for the bond payment and $4 million a year for operations, the City would net $25 million per year, or $1.25 billion over the 50 years. Subtract a $10 million technology upgrade every 10 years, doubled if you floated 10 year bonds to be paid back with interest, the City would still net $1.1 billion over the 50 years. That is equivalent to $22 million per year. Again, better than the average $8 million per year the City would get through the ACS deal.

And while Kintner explains on his slide that it does not include the benefit of ACS moving 200 jobs to Indy, he ignores the fact that just moments before, he estimated the City would generate 600 jobs if it bonded the cost of meter upgrades and ran the system itself.

All of this adds up to a dizzying amount of spin - just to get this deal signed. Indy deserves better than what it got last night from Huber and Kintner.

As for the meter issue itself. Why doesn't the Council review and deny the MDC-CIB interlocal agreement that will send $8 million of property tax revenues from the consolidated downtown TIF to the Pacers, and make it clear to the Mayor and the MDC that it would support $8 million from that TIF being spent on parking meter upgrades. They could then double the parking fees, provide for annual increases to the fees based on the cost of living, and add the 100-130 additional meters contemplated with the ACS deal. The City would then stand to pull in an average of $32 million a year in revenue that it does not have to share with ACS. It can then afford the added $4 million a year in operating costs for a net of $28 million a year on average, for a total of $1.4 billion over 50 years. This is the most flexible and adaptable approach to the issue of how to generate more money from the parking meters. Not the ACS deal.