Is The Sale Of City Assets The Real Reason For This Year's Budget Chrunch?

This is the fifth year that I have spearheaded the budget review effort of the Marion County Alliance of Neighborhood Associations.  Each year is different to some extent.  This year there are some real anomalies and, frankly, I'm still trying to wrap my head around them.  So, none of that in this post.

Mayor Ballard and his administration are focusing their comments, and hoping thereby to focus the public's attention, on decreased tax revenues and waving their hands about a $64 million shortfall in order to justify transferring $38.5 million from the consolidated downtown TIF to make ends meet.  I cannot actually locate the $4.2 million transfer from the CIB in the 2012 budget, so I am leaving that off for now.

The rhetoric is that property taxes are stable, but income taxes are off $85 million from their peak in 2010.  A closer look at the numbers provided in the 2012 budget book show a drop of $11 million in combined local tax revenues, an increase of $7 million in property tax revenues, and a drop of $15 million in income tax revenues between the 2011 and 2012 budget years.  Add it all up and you have a drop of $19 million.  Real money to be sure, but the City claims to have cut the budget by $20 million simply by requesting non-safety departments that rely on these very tax revenues to each cut their budgets by 6%.

Ordinarily I would also be commenting upon all of the other sources of revenue in this paragraph.  But, unfortunately this year's budget book does not supply a summary table of revenues.  I will have to slog through the details of the budget, which has been provided online, create my own spreadsheet and from that, my own summary table.  I have not had the time.  Representatives of the Office of Finance and Management insist that a summary table will be provided before the budget ordinance is passed.  Great.

Moving on.

The budget for the Department of Public Works is more than interesting this year.  That Department operated the profitable sewer utility that was the sweetheart part of the sale of the water and sewer utilities to Citizens Energy - a deal that closed this past week.  DPW's budget is also the one that serves as the collector of parking meter fees.  You will recall that the meters were sold via a 50 year lease with ACS and some local parking companies with enough political clout to get themselves included in this great giveaway of public assets.

Comparing the DPW budgets for 2011 and 2012 it is easy to see that expenses (p. 41 of the link) have dropped by $78.4 million (largely due to the off-loading of the sewer and water utilities), but a drop in revenues (p. 37 of the link) of $153.0 million.  Looking closer, there is a drop in contribution from the Indianapolis Foundation/Central Indiana Foundation from $8 million to $200 thousand. 

Under parking meters you can see a drop from $2.3 m in 2011 to $1.3 m in 2012.  This, of course, is part and parcel of the fee-sharing demanded by the parking meter contract.  None the less, it means less money for the City each year.  In 2012 it means $1 m less.  Still real money.

The rest appears to be mostly sewer utility related - so, roughly a drop of $144 m, give or take a couple of million.  There is a PILOT (payment in lieu of taxes) that was increased this year and continues to flow from the sewer utility.  That seems to be contained in its own fund which shows revenue for 2012 of $7.5 m.  There is also another roughly $3.5 m scattered among a number of funds from PILOT payments from Waterworks.  Good money, but not enough to cover the cash cow that the sewer utility was for the City and its taxpayers. 

All of this distills down to about a $50 million revenue shortfall due to the sale of the sewer and water utilities and a $1 million revenue shortfall due to the 50 year lease of the parking meters.

It is apparent that the sale of our assets, especially our profitable assets, is having a much larger impact on the 2012 budget than is any drop in tax revenues.  And while tax revenues will recover, loss of our assets will be a permanent loss to all future City/County budgets. 

It therefore becomes imperative that the cuts be considered permanent and structural changes be made for sustainable budgets going forward.  Sure, Mayor Ballard can transfer (aka 'rob') $38.5 million from the consolidated downtown TIF to make ends meet in 2012.  But, lets not pretend that that is a permanent solution to a permanent change in City finances.

IURC Takes Utility Sale To The Community For Comment

The Indiana Utility Regulatory Commission has taken up the issue of Indianapolis' sale of the water and sewer utilities to Citizens Energy. Still pending a final decision by the IURC, is the older request for a 35% rate hike, the outcome of which will decide whether Citizens Energy pulls the plug on the deal itself.

Jon Murray, IndyStar reporter with the City Hall beat, has been doing an exceptional job covering the hearings conducted by the IURC on the utility deal (see "IURC begins hearing on proposed sale of utilities", "Public hearing set on Indianapolis' utilities sale", "Can city sell the IURC on utility deal?", and the latest, "Fee to sell utilities is focus of submissions"). His series illuminates a vigorous debate by consumer advocates and City officials before the IURC. The idea that the IURC could trim back or deny the sale is even in the air as a slim possibility.

Murray reported yesterday:

The ratepayer group, represented by Indianapolis attorney John Price, disputes the city's decision to pay Veolia to end its 20-year contract early. It argues there was ample cause to cancel the contract without payment because of performance problems and other violations.

One possibility is highlighted in new testimony by Tom Plummer. The ratepayer group member and a longtime water utility operating supervisor repeats allegations that Veolia, formerly US Filter, falsified records to receive some incentive payments from the city.

"Several Indianapolis Water employees told me that they were asked by USFilter/Veolia personnel to alter records in order to make it appear that USFilter/Veolia had earned an incentive payment when in fact the unchanged records would not have supported the claim for the incentive payment," Plummer testified.

In 2005, federal authorities investigated similar allegations of falsified water records. No charges were filed.

The ratepayer group also objects to the utilities transfer based on deep cuts to nonunion employees' benefits -- despite city leaders' assurances at the time -- after the city bought the water utility in 2002. A lawsuit filed by employees about the same issue failed several years ago.

The IURC has announce a field hearing for next week, and the Office of Consumer Counselor, which represents the interests of ratepayers before the IURC, will take comments through their website and via fax. Again, from an earlier Murray report:

On Jan. 5, the IURC will have the public hearing at Crispus Attucks Medical Magnet High School, according to a news release today from the Indiana Office of Utility Consumer Counselor.

An information session will begin at 5:30 p.m., and the public comment portion of the hearing will start at 6 p.m. The school is at 1140 Dr. Martin Luther King Jr. St.

The consumer counselor's office also is accepting comments via its website, www.in.gov/oucc. Click "comment on a case." You can also send a fax to (317) 232-5923 or mail a comment to Indiana Office of Utility Consumer Counselor, PNC Center, 115 W. Washington St., Suite 1500 South, Indianapolis, IN 46204. Include the case number: 43936'

Big Day for Public Notices - IPS, Lawrence, Beech Grove, Pike & Utility Sale

Today's Indianapolis Star has lots of public notices for local school districts as well as a notice related to the sale of the Indianapolis water and sewer utilities.

The annual financial reports for IPS, Lawrence, and Beech Grove school districts are up. I cannot overstate the amount of useful information included in these reports. They include information on the number and salary range of administrators, non-certified staff salary ranges, teacher salaries plus extra-curricular compensation, a comparison of the budgeted expenses and how much was actually spent, tax rates for 2009 and 2010, a list of all vendors who were paid over $2500, a list of debt, budgeted vs. actual revenues, and school enrollment by grade level.

MSD Pike Township has its notice of tax levies for the upcoming budget process. With an estimated 2011 budget of $132,450,982, they expect a maximum property tax levy of $40,049,800, little changed from $40,050,402 this year. Also noticed are the 3-year capital projects fund plan and bus replacement plan. A public hearing on all will be held August 26, 2010 at 7:00 pm in the Board Room, ASC - no street address given. The Board is expected to vote on the budget at its September 16 meeting.

Lastly, there is also a public notice saying that the utility deal has been sent to the IURC for review. This is available on the IndyStar website here. It is noted that it is cause number 43936. No hearing date is disclosed. This notice is pasted below:

BEFORE THE INDIANA UTILITY REGULATORY COMMISSION CAUSE NO. 43936 JOINT PETITION OF THE BOARD OF DIRECTORS FOR UTILITIES OF THE DEPARTMENT OF PUBLIC UTILITIES OF THE CITY OF INDIANAPOLIS, D/B/A CITIZENS ENERGY GROUP, CWA AUTHORITY, INC., THE CITY OF INDIANAPOLIS AND ITS DEPARTMENT OF WATERWORKS AND ITS SANITARY DISTRICT FOR APPROVALS IN CONNECTION WITH THE PROPOSED TRANSFER OF CERTAIN WATER UTILITY ASSETS TO THE BOARD AND THE PROPOSED TRANSFER OF CERTAIN WASTEWATER UTILITY ASSETS TO THE AUTHORITY, INCLUDING: (A) APPROVAL OF INITIAL RATES AND RULES FOR WATER AND WASTEWATER SERVICE , AS WELL AS THE TERMS OF CERTAIN AGREEMENTS FOR WASTEWATER TREATMENT AND DISPOSAL SERVICE; (B) APPROVAL OF AN ENVIRONMENTAL COMPLIANCE PLAN UNDER IND. CODE 8-1-28 AND AN ADJUSTMENT MECHANISM FOR WASTEWATER RATES TO PROVIDE TIMELY RECOVERY OF COSTS NECESSARY TO COMPLY IN WHOLE OR IN PART WITH THE SAFE DRINKING WATER ACT AND/OR CLEAN WATER ACT; (C) APPROVAL OF PROPOSED ALLOCATIONS OF CORPORATE SUPPORT SERVICES COSTS AMONG AFFECTED UTILITIES; (D) APPROVAL OF AN OPERATING AGREEMENT BETWEEN CITIZENS ENERGY GROUP AND CWA AUTHORITY, INC.;(E) APPROVAL OF DEPRECIATION RATES AND OTHER ACCOUNTING MATTERS RELATED TO THE WATER AND WASTEWATER ASSETS; AND (F) ANY OTHER APPROVALS NEEDED IN CONNECTION THEREWITH
______________
LEGAL NOTICE
______________
PUBLIC NOTICE is hereby given that on August 11, 2010, the Board of Directors for Utilities (“Board”) of the Department of Public Utilities of the City of Indianapolis, along with CWA Authority, Inc. (the “Authority”), the City of Indianapolis, Indiana (the “City”), the Department of Waterworks (the “DOW”) of the City, acting by and through its Board of Waterworks and the Sanitary District of the City (the “Sanitary District”), acting by and through its Board of Public Works, (collectively the “Petitioners”) filed with the Indiana Utility Regulatory Commission (“Commission”) a verified petition requesting approvals relating to the proposed acquisition of certain water utility assets by the Board from the City and DOW and the proposed acquisition of certain wastewater utility assets by the Authority from the City and Sanitary District. Among other relief, the Board is seeking authority to adopt the schedules of rates and charges applicable to the provision of water utility service by the DOW in effect on the closing date. The Authority is seeking Commission approval of its use of the schedule of rates and charges applicable to the provision of wastewater utility service by the Sanitary District, as set forth in the City’s rate Ordinance. The Authority also is seeking Commission approval of an environmental compliance plan under Ind. Code 8-1-28 and authority to implement an adjustment mechanism for wastewater rates and charges to provide timely recovery of future environmental compliance plan expenditures necessary for the Authority to comply in whole or in part with the Safe Drinking Water Act and/or Clean Water Act, as well as other requisite relief. A copy of the Petitioners’ verified petition is on file with the Commission in Cause No. 43936 and details supporting the relief requested therein will be provided in the Petitioners’ testimony and exhibits to be filed with the Commission in Cause No. 43936. Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, d/b/a Citizens Energy Group and CWA Authority, Inc. By: Carey B. Lykins, President and Chief Executive Officer (S - 8/14/10 - 5694640) - 08/14

Council Meets Tonight -- Utility Deal Up

The City-County Council meets tonight, and the transfer of the water utility and the sale of the sewer utility are on deck. The agenda is posted here.

Among the proposals to be introduced that strike my eye is Proposals 215, authored by the Office of Finance & Management and sponsored by Councillor Hunter. This proposal would budget $9.9 million of County Option Income Tax to :

SECTION 2. A certified distribution in an amount not to exceed $9,900,000 is to be used for the following purposes:
(1) the provision and maintenance of modern, dependable, and efficient public safety communications systems within the district for the purpose of promoting the expeditious delivery of public services to the residents and taxpayers throughout the district in order to assure the public health, safety, morals and general welfare and
(2) the provision of computers for the efficient functioning of governmental offices for the benefit of the residents and taxpayers throughout the district.

This bears looking into further, to see just what is being purchased and what will lose COIT funding in the future.

The very last action item on tonight's agenda is the utilities deals, Proposal 197. This deal has the benefit, should all the promises actually be kept, of some major infrastructure remediation in Indianapolis. But, the deal itself has too many highly negative aspects to warrant the 'yes' vote of any Councillor.

Here is my short list of primary reasons to vote against the utility transfer and sale:

1) There is no dedication of funds to ensure that the money will actually be spent on infrastructure as promised. The Council itself stopped this from happening, preferring to leave spending decisions to future Councils. There has been no proposal, as far as I have seen, to even account for the spending of the proceeds. Can the prediction of funding for Superbowl expenses be too far off? More money for the ICVA, IDI, CIB, or IEDI? Maybe a boost in arts funding? How about cash for other pet projects that are in favor? Or a few bucks toward raises, new software packages, or contracts with PR firms? The only banned expenditure for the funds is to the benefit of sports teams, an amendment introduced by Councillor Lutz.

2) All of the cash will be the proceeds of bond sales. Meaning the sewer utility ratepayers will be paying not only the money to be used for infrastructure (again IF the promises are kept), but also at least that much again for interest and fees to Citibank and the like.

3) The ratepayers will pay on the bonds for 30 years, while the infrastructure repairs will last 10 to 15 years. Your children or grandchildren's pockets are being picked so that your street can be smooth and shiny for a short while. What will they do for street repairs? It seems to me that a key ingredient that is missing here is sustainability. When the money is gone, it is gone for good. The next generation will have higher bills and lower ability to pay for their own needs. This is NOT looking 50 years down the road and doing what is right. It is looking to the next election year and doing what is expedient.

4) Not to be overlooked is the impact of this deal on the local taxing units besides the City/County. By attempting to preserve the property tax-free status of the sewer utility, the City is blocking the other units (schools, library, health & hospitals, and townships) from receiving tens of millions of dollars in property taxes each year. The question I posed to City officials and blogged on in "The City Needs To Learn To Share", remains unanswered by those officials. Without that added information, I cannot begin to guess whether the other units are losing their share of $25 million annually, or losing their share of $125 million annually. In either case, it is substantial. One can only guess what the Legislature will do in future years to remedy this loophole in the Indiana Code, perhaps putting taxpayers on the hook in addition to the hook they definitely will be on as ratepayers.

5) There is no clawback ability in the case of mismanagement by Citizens Energy. Yes, first right of refusal is in place, should Citizens Energy attempt to sell the utilities in the future - which is very good. But, there is no ability to pull them back without the consent of Citizens, should the need arise.

6) Last but not least is something I haven't heard talked about. That is the fact that Citizens Energy is awaiting the decision of the Indiana Utility Regulatory Commission on the 35% water utility rate hike that is currently before them. Yes, the deal with the City stipulates that Citizens Energy cannot request a new rate hike for 2 years after the deal is completed; pushing further rate hikes beyond the next Mayoral race. But, the 35% increase is still alive and critical to Citizens Energy's calculations. Citizens Energy officials have been clear, they have a strike price in mind for how large an increase the IURC must allow this time, for the utilities deal to make financial sense to them. Should the rate increase be too small, Citizens Energy will not consummate the deal. Yet, the deal is in separate pieces. Maybe I missed it, which could well be given the length of the documents, but I don't see both utilities being tied together as one deal. If the IURC fails to meet Citizens Energy's strike price, could they buy the sewer utility only and decline to assume the nearly $1 billion in debt on the water utility transfer? The sewer utility is well run and has always been the cash cow in this deal. One can only guess and wonder - and wait - on this last point.

Well, that's my dirty half-dozen reasons why Proposal 197 should be voted down.

The Utilities Sale Is a Mixed Bag

Anything as complex as the sale of Indianapolis' water and sewer utilities will garner mixed reactions. Not exactly a shocking statement. So, here is my take on several aspects of the deal as it is pending before the Indianapolis-Marion County City-County Council in the form of Prop 197 (see here for supporting documents and here for background documents). By the way, the Utility Transfer Oversight Committee of the Council is scheduled to meet again on July 19 - presumably in the Public Assembly Room, where they will again take public comments. That meeting will begin at 5:30 pm.

The basic outline of the deal is that the City of Indianapolis is transferring the water utility it owns to Citizens Energy for no cash, just the assumption of existing debt, and, it is selling the sewer utility it owns to Citizens Energy for $262.6 million in cash and the assumption of existing debt. Clearly, the sewer utility is the cash cow in this situation.

There have been some key players in crafting the sale, notably Chris Cotterill, the Mayor's Chief of Staff, and Dave Sherman, head of DPW, who I find to be genuinely interested in listening to ideas that can make this deal better in pretty much any aspect, except the core idea of the sale itself and the use of the proceeds for primarily infrastructure improvements. I am pleased to find this sort of openness in government, and I wish there were more folks like them. Now, that doesn't mean I think others who are involved give a hoot what the public thinks or how to improve the deal. Certainly there are some who are only looking to prod the deal in any direction that will send money to companies and outfits with which they are associated. And also certainly, there are those who are only motivated by the resulting humongous slush fund for Republican candidates for Mayor and Council in 2011.

Among the tinkered edges improved by public input, is the inclusion in the sales documents, of a prohibition on Citizens Energy ever selling these two utilities to a for-profit company. Additionally, a strong part of the deal is the first right of refusal if Citizens ever sells the water and sewer utility to a not-for-profit company or entity. Access to properties that is now enjoyed by the public, such as to Geist Reservoir, is to be preserved as well - although perhaps not to the full extent some members of the public would prefer.

Strong arguments that I have heard put forth, that have failed to materialize in the final documents, are water quality standards beyond baseline standards set by the EPA, any oversight on water quality or quantity by local authorities, or any instances of gross negligence under which the City would be able to take back these utilities without the consent of Citizens Energy. One I feel especially fervently about, and which will not see the dark of ink, is a dedication of the money to infrastructure improvements - making legal and binding, all the promises that are being made to the public in order to 'sell the sale'.

Now lets talk about the forbotten topic - should the City sell these utilities? Much is made of the nearly $1 billion in debt owed by the City for the water utility. Many believe that this utility is not managed and operated nearly as well as it should be. This is used to promote a sale. Also used to promote a sale, is some desire to remove 'partisan political governance'. Personally, I don't find any of these issues compelling. The debt is huge - but the ratepayers will still be on the hook for repaying it, regardless of who owns title to the utility. The sales agreement calls for Citizens Energy to honor the existing operating contract with Veolia that are now obligations of the City - so again no change. And lastly, one person's 'partisan political governance' is another person's 'accountability'. You say potato, I say potato. We move the water and sewer utility from services contracted by the City of Indianapolis and its elected officials, to services contracted by Citizens Energy with its self-perpetuating Board accountable to nobody else - not even shareholders.

Nobody talks about mismanagement or onerous debt encumbered by the sewer utility. By all accounts, the City has done a pretty fair, and lately a darned good, job of owning and running the wastewater system. It is under a consent decree with the EPA to make about $2.5 billion worth of improvements to keep sewage from overflowing into our rivers and streams every time it rains (Combined Sewer Overflow remediation). This represents a reduction of $1 billion from an earlier arrangement with the EPA. Everyone I know attributes this reduction in projected cost to the stewardship of Dave Sherman as head of DPW.

It is this reduction in projected cost for CSO remediation that gets garbled up in all the numbers - and I think this garbling is deliberate and unfortunate. The City's PR team wants to sell the public on the idea that Citizens Energy can pay the City $262.6 million in cash for the sewer utility and still keep rates lower than they would have been prior to the $1 billion reduction in projected cost of remediating the CSO problem. I think it is more fulsome to say that the $1 billion in reduction in the projected cost of remediating the CSO problem is fantastic - thank you Dave Sherman. But, the fact that Citizens Energy will have to float a 30 year bond to raise the cash to pay the City, will cause sewer rates to go up in order to repay the principle and interest on the bonds.

This is where the folks who support a simple transfer have a very good point. But, the water company 'sale' pretty much IS a simple transfer of that utility from the City to Citizens Energy. And all the poor management and onerous debt sound like supportive arguments making a case for the transfer. It is the sewer utility sale that is not a transfer, and without any real compelling arguments for the sale - except there is cash to be pulled out of the sewers that will result in higher than absolutely necessary rates for sewer customers. Make no mistake about it, the value of the sewer utility is not in any hard equity built into that system, but is totally contingent upon the fact that Dave Sherman brought projected rates lower than they would have otherwise gone, and the illusion that we somehow can spend that difference like it was equity.

So, now we're on to the topic of cash being obtained from the sewer utility. Just last month the City-County Council approved an increased PILOT from the sewer utility, most of which would be used to secure a 30 year bond to bring roughly $140 million immediately to the City for infrastructure improvements. I attended the Council committee hearing on this matter and something that Councillor Brian Mahern said still rings in my ears. He called it 'monetizing the PILOT payments'. Only, its 'monetizing money'. What they did was to basically take out a loan for $140 million, to spend over the next 2-4 years, and repay more than twice that amount when interest and fees are calculated -- when they could get the same $140 million from the PILOT payments in less than 10 years and have over 20 years of gravy after that. This leads me directly to the conclusion that a major purpose of generating this money is to fund the re-election campaign of Greg Ballard and Republican members of the Council. Otherwise, why be so impatient? Remember, the sewer ratepayers will be paying for 30 years to make infrastructure improvements that will last 10-15 years (and some say even fewer years than that). Why be impatient for the money?

This is the same situation that sewer ratepayers will face when Citizens Energy floats a 30 year bond for the $262.6 million sales price. That $262.6 million may be spent by the City on infrastructure improvements that last 10 -15 years -- but the rates will be elevated for 30 years to repay that money plus interest and fees.

Ratepayers will pay back at least twice the principle of both bonds, and easily more, when interest and fees are considered. So, $800 million to be paid by ratepayers over 30 years for street repairs costing $400 million that will last half that time. This money also eats up any rate savings that Dave Sherman's CSO remediation plan affords the community. Its not savings if you spend it. It is just an expense column adjustment.

On top of all this, there is no guarantee the money will be spent on infrastructure improvements. It is my understanding that the Mayor's office was willing to look at how to dedicate the proceeds of the PILOT and the sewer utility sale, but the Council blocked it. That's not good, in my book. If a Councillor is knee deep in 'selling the sale', then they have an obligation to ink down the promises being made - to protect the community from a bait and switch deal.

This deal is awash in politics - even as anti-politics is said to be a motive for selling the water and sewer utilities. This deal is clearly bad financing (monetizing money) - even as it is being touted as 'clever' financing. And, this deal will leave the sewer ratepayer with around $800,000,000 to pay off, long after the streets that do get repaved are crumbling once again.

I like very much the fact that at least some in City government have been honestly listening to the public. I'm not sure if I could be in favor if the deal was a straight transfer of the water utility only - but quite possibly. But, floating 30 year bonds for $400 million, to be spent on promised infrastructure improvements that will last half that time and leave the ratepayer on the hook for $800 million, strikes me as a generational ponzi scheme that is fiscally irresponsible.

The City Needs To Learn To Share

With the advent of the age of the tax caps, Indianapolis needs to learn to share property tax proceeds and not scarf as much of the pie as they can legally get away with.

As property tax caps are now in full effect and a ballot question in November could make them constitutional in Indiana, legal loopholes are being mined by the City of Indianapolis to allow the City to take a tad more than they are due.

The one power that the City of Indianapolis has that no other taxing unit in Marion County has is the right to grant abatements. Which it seems to do with abandon lately. Just look at the Jeff Swiatek's article in yesterday's Star business section, where he reports an abatement for CSO Architects, Harlan Bakeries, Greatbatch Medical, and Sharp's Academy - all in one fell swoop.

Now we are all lectured to remember that an abatement is a forgiveness of taxes in the future for businesses or expansions of businesses that do not exist today - taxes that we are supposed to believe would never have been generated because these businesses would have taken all their marbles and gone to another County to play, had Indianapolis not stepped up to sweeten the deal with a forgiveness of property taxes. The City forgives not only the money that would be owed to Indianapolis, but also the taxes that would be owed to our schools, the library, our township, etc. I'm actually not trying to build a case against abatements; not at the moment anyway.

One good aspect of the abatement process in Indianapolis, is the routine inclusion of 'clawback' clauses. If the business doesn't invest the full amount of money promised, or create or retain the full number of jobs promised, the City can get the amount of the forgiven taxes back.

The 25th floor, under Mayor Ballard, is very very clever when it comes to finding and mining legal loopholes. I don't want to discourage that sort of thing entirely, since the State wields a heavy hand when telling all cities and towns how to go about their business. Finding a good loophole from time to time could be beneficial.

But, in today's property tax climate, we should all be concerned that the tax revenues are meted out proportionately and therefore fairly.

The Ballard Administration found a loophole in the case of 450 E. Market Street (see "Ludicrous or Clever - You Decide" and "MDC Public Hearing On The TM Miller Enterprises Abatement" and "MDC to Hold Public Hearing on Abatement for 450 E. Market") and were set to abate about $6.7 million in property taxes, get paid that very same amount, and use the money to buy an overpriced garage. In short, the City was planning on taking the tax money that would have gone to the schools and library and township and health & hospitals and keep it for its own. On top of it all, it was going to waste that money on buying a garage that it didn't really need. This deal, even though it passed all MDC and Council votes, has not yet been inked down - and that is a very good thing.

The Ballard Administration found another loophole with the $5 million clawback of abated taxes in the case of Navistar. (See "Abatements - Scary Loopholes Need Closing") And they kept it all -- even though the property tax distribution formula would suggest they 'deserved' only about 20% of it. They kept all the money. Then, they wasted that money by sending it on to the Indianapolis Economic Development, Inc. and the Indianapolis Convention and Visitors Association; two not-for-profits living largely off government largess while paying handsome salaries for its operators.

Now the Ballard Administration has found an even bigger loophole whereby proper apportionment of property taxes is set aside to the benefit of the City over the rest of the taxing units. This one makes the $6.7 million and $5 million deals look like chump change. And this is the loophole on the carve out of the sewer utility from the property tax system.

Indiana Code 36-3-2-10, authorizes Payments In Lieu of Taxes (PILOT) from otherwise property tax free parcels in Indianapolis. Indiana Code 36-3-2-10(d)(4), lists "wastewater treatment facility", which at the time, was owned entirely by the City of Indianapolis.

The City-County Council recently increased the PILOT payments from the sewer utility and authorized the money be used to pay off 30 year bonds for infrastructure repairs. (See "City-County Council Should Vote Down Prop 132") The plan is to sell the sewer utility for another $260 million in cash to Citizens Energy. The sales agreement stipulates that Citizens Energy will not attempt to get the Legislature to change the sewer utility from a tax-free, PILOT paying, enterprise into a property tax paying enterprise. Now, this tax-free status is very different from the gas utility and the water utility - both of which currently pay and which will continue to pay property taxes after this sale goes through.

I have asked a couple of folks in City government this question: Are the PILOT payments from the sewer utility more than, less than, or equal to, the amount the utility would pay if it owed property taxes? I have not been able to get an answer. The law does not allow PILOT payments to be more than the utility would pay in property taxes - so let's just toss that possibility out.

Let's run through the remaining two possibilities.

If the PILOT payments are equal to the amount the utility would pay if it owed property taxes, then the City is actually keeping all of roughly $25 million per year for 30 years, when all it would be due is 20% of that. That means that roughly $20 million per year will not go to schools and the library and health & hospitals and the townships. And, over 30 years that would add up to $600 million.

If the PILOT payments are less than the amount the utility would pay if it owed property taxes, then the City is forgiving 80% of the taxes Citizens would otherwise have to pay and shafting the schools and the library and health & hospitals and the townships.

Why the Council voted to increase the PILOT payment from the sewer utility BEFORE getting a clear okay from the State Legislature that it will not rescind the special tax free status of that utility in the future, is beyond me. If the Legislature were to do that, then Indianapolis taxpayers could be on the hook for repaying those infrastructure bonds - and not just as ratepayers, but also as taxpayers. But, it all depends upon the answer to my question: Are the PILOT payments from the sewer utility more than, less than, or equal to, the amount the utility would pay if it owed property taxes?

In any case, I finally come to the final point of this post. With property tax caps fully implemented, the City should refrain from pulling any of the money owed to the other taxing units to use for their own purposes. And, if the City will not do it of its own accord, the State Legislature should step in and require this simple act of fairness.

Two Council Committees Meet Tonight

The Indianapolis-Marion County City-County Council has two committees with meetings tonight, both scheduled for room 260 of the City-County Building.

First, at 5:30 pm, the Rules Committee has two items on its agenda - Prop 183 which would put the authority of the Board of Waterworks into the Board of Public Works (and which is likely a moot point since the BofW already supported the sale of the water company to Citizens Energy) -- and -- Prop 196, which is a Council resolution sponsored by Councillor Evans to limit contracts and attendance at conferences in Arizona until that state suspends or repeals its new immigration law.

Then at 6:00 pm, the newly formed Utility Transfer Oversight Committee will be meeting to discuss Prop 197, which authorizes the sale of the sewer and water utilities to Citizens Energy. The City and Council have posted a bunch of information regarding Prop 197:

Exhibit A (19 pages) -- roughly, creates a new Authority to oversee the sewer utility, which would be controlled by Citizens Energy upon the sale of that utility. Interestingly enough, and importantly enough, this document seeks to bar the future sale of the sewer utility to a for-profit entity. This is what the paragraph under "Purpose" says:

In addition to the purposes set forth above, this Agreement provides for (a) the provision of wastewater collection and treatment services through the formation of the Authority as a separate legal entity organized as a nonprofit corporation, (b) the transfer to the Authority of the System as specified in the Purchase Agreement, (c) the delegation and/or transfer to, and vesting in, the Authority of all powers that are necessary, useful or appropriate, except the taxing power and taxing authority of the City and the District, (i) for the acquisition, ownership and operation of the System and/or (ii) for the Authority to have jurisdiction over disposal of sewage, industrial wastes or other wastes and qualifying as a publicly owned pretreatment works within the meaning of the Clean Water Act, in each case, except the taxing power and taxing authority of the City and the District, and (d) the exercise by the Authority of the powers delegated and/or transferred to it herein on behalf of the City, the District and Citizens for the benefit of the inhabitants of the City and the customers of the System in a manner that (x) protects the City and its inhabitants against further sale or disposition of the System, and forever from private ownership, control or partisan political governance; and (y) is coordinated with other utility properties that may be held, owned and/or operated by the Citizens or its affiliates (including the Authority) and (z) is irrevocable.

Exhibit B (84 pages) entitled "Asset Purchase Agreement" -- roughly, is the sales agreement for the sewer utility. A quick perusal finds that the agreement would
-- prohibit the future sale of the sewer utility to a for-profit entity and as an additional safeguard, a grant of the right of first refusal for repurchase of this utility by the City-County (two thumbs up !!)
-- allow NO MORE THAN a 10.75% annual rate hike through 2013 - which through reference much later in the document appears to be the rate hike request now under review by the Indiana Utility Regulatory Commission
-- an agreement that Citizens Energy will not seek to have the sewer utility placed under the property tax system and thereby jeopardize the PILOT just passed by the Council that I discussed in "City-County Council Should Vote Down Prop 132" and which I will bring up again in another post
-- all for the assumption of debt and a cash payment of $262,600,000

Exhibit C (78 pages) also titled "Asset Purchase Agreement" -- roughly, is the sales agreement for the water utility
-- prohibit the future sale of "Geist Reservoir, Morse Reservoir, the Canal,the South Well Fields, and any other wells or current water sources to the extent such wells or water sources are critical to providing water to the trust beneficiaries" (excellent provision)
--prohibit the future sale of the sewer utility to a for-profit entity and as an additional safeguard, a grant of the right of first refusal for repurchase of this utility by the City-County (two more thumbs up !!)
-- a rate freeze for at least 2 years (until right AFTER the next Mayoral race - coincidence??)
-- the sale is contingent upon the results of the rate hike now before the IURC being "acceptable" (as I understand it from another meeting, it must be acceptable to Citizens Energy or they will not go through with the purchase) and the sale shall not be consummated prior to 6 months after the new rates take affect
-- all for the assumption of debt alone

Supporting document A (7 pages) -- titled "Articles of Incorporation of CWA Authority, Inc.", which is the authority created to assume the assets of the sewer utility and to be run by Citizens Energy

Supporting document B (119 pages) -- the Consent Decree for the remediation of the CSO problem, dated 9-20-06

Supporting document C (75 pages) -- sales disclosure for the sewer utility

Supporting document D (27 pages) -- amendment to the Consent Decree dated June 3, 2010

Supporting document E (1 page) -- a map of the excluded assets of the Belmont treatment plant

Supporting document F (68 pages) -- sales disclosure for the water utility

Supporting document G (31 pages) -- appears to be the 2010 Capital Improvement Plan for the water utility

Supporting document H (1 page) -- map titled "Current System Configuration" showing the location of various features of the water utility with Council Districts overlaid. The south wellfield seems to have been omitted on the map to these eyes.

Supporting document I (1 page) -- flow chart of Veolia's proposed water utility capital improvements, dated 10-17-2008

WHEW !!!!

The Utility Transfer committee members are: Republicans Ryan Vaughn, Marilyn Pfisterer, Bob Lutz, Barbara Malone, Angel Rivera, and Mikes Speedy, and Democrats Joanne Sanders, Paul Bateman, Maggie Lewis, Brian Mahern, and Angela Mansfield.

This committee is set to meet again on July 19 at 5:30 pm in room 260 of the City-County Building.

City-County Council Should Vote Down Prop 132

Monday night the Indianapolis-Marion County City-County Council will decide the fate of Proposal 132, which authorizes an increase in the sewer utility PILOT (Payment in Lieu of Taxes), authorizes issuance of a $170 million bond to be repaid with these PILOT payments over 30 years, and appropriates the bond proceeds to be spent on projects approved by the Public Works Board.

Whether one is in favor of generating money for infrastructure needs through increase utility rates - whether one is in favor of selling the City's water and sewer utility - extreme caution should accompany any consideration of passage of this Proposal as it does a disservice to the long term interests of the City's taxpayers, ratepayers, and myriad property taxing units.

Let's start with the PILOT itself. I learned just two days ago, at a meeting set up by Councillor Christine Scales between local bloggers and representatives of Citizens Energy, that Citizens Energy pays property taxes. It does so for the property assets of its current utilities, and would do so for the water utility, should they take ownership of that utility. But, the PILOT envisioned in Prop 132 will be substituted for any property tax liability Citizens Energy would have regarding the sewer utility, should they take ownership of it.

A number of questions immediately come to mind. I have scanned through the 'library' of information the Ballard Administration posted online on Friday, but didn't see the answers to these particular questions. (the library can be accessed at ftp://ftp.indygov.org/utilities/ -- the user name and password are both "public")

The questions are: by what statute does the City have the authority to replace the property tax liability of any organization and substitute a PILOT? How much would Citizens Energy have paid in property taxes over the next 30 years, should they take ownership of the sewer utility? How much revenue do the other property taxing units in Marion County stand to lose if the PILOT goes through and they do not get property tax revenue for the sewer utility?

The PILOTs I have heard of before now were assessed to organizations that normally do not pay property taxes; the airport and the CIB come to mind. The important difference between a PILOT and property taxes is that the City gets the entire PILOT amount, but property taxes are shared among all taxing units relevant to the property location. Usually, schools get about half, the City/County government nabs about one fifth to one fourth, the municipal corporations (Health & Hospitals, Library, and IndyGo) get about one tenth, and the Township Government gets the rest. So, should the City swap out property tax liability for a PILOT, which it is still unclear to me they have the authority to do, it takes money from Marion County schools, Townships, the library, IndyGo, and Health & Hospitals.

Chris Cotterill, Mayor Ballard's Chief of Staff, tells me that IC 36-3-2 and 8-1-11.1 exclude the sewer utility even if Citizens owns it. Hopefully the lawyers will hash this out more fully. But, what I see is that IC 36-3-2 begins with the premise that "That the tax base of the consolidated city and the county have been significantly eroded through the ownership of tangible property by separate municipal corporations and other public entities that operate as private enterprises yet are exempt or whose property is exempt from property taxation." Since Citizens Energy pays property taxes on its currently owned utilities and would do so if it were to own the water utility, it certainly seems like, at best, a huge loophole to forgive them property taxes on the sewer utility -- thereby getting ALL the tax money for the City and denying other taxing units their due.

Another problem with Prop 132 is that it envisions floating a bond that will take 30 years and cost $292.5 million to repay (see this report in the 'library'). From that money, only $135 million will be generated to spend on infrastructure projects (if indeed the money actually gets spent on such things and only such things). These projects do not have a useful life of 30 years - much less in fact. It is a pretty simply tenet, you don't get a loan for a longer term than the life of the article which you would purchase with the loan. So, the bottom line is that the sewer utility ratepayers would pay $135 million in principle and $157.5 million in interest and fees over 30 years for repairs and construction which will not last for 30 years.

If we went by the more prudent, pay as you go system, the PILOT would generate the $135 million by year 14 (2023) and the remaining years through 2039 would see it generate over $280 million.

The final critical problem with Prop 132 is that the funds generated are not dedicated to the projects which have been promised. Section 29 of the Proposal states clearly: "All PILOT received by the City shall be deposited in the consolidated county fund and used for any purpose that the consolidated county fund may be used." So, the money can be re-appropriated and used for pretty much anything. In addition the PILOT is anticipated to generate about $123 million MORE over 30 years than is needed to repay the bonds. Yes, I'm sure the City could find many things to spend this money on. But Mayor Ballard continues to promise infrastructure improvements and the administration and the Council should be making sure that all of the proceeds of this deal are dedicated to fulfill their promises. And if they do not dedidate the funds, then there is no taxpayer or ratepayer in Marion County who should believe the promises. As the saying goes, they won't be worth the paper they aren't written on.

There are several BIG problems with Prop 132 - swapping a PILOT for property taxes denies other taxing units their due revenue, paying on what is basically a loan over 30 years for things whose tangible life is far less than 30 years, having ratepayers pay more for interest and fees than for promised projects, and not backing up the promises by dedicating the money for the promised projects in writing. All of these should lead to a Council vote against Prop 132.

Rules Committee to Vote Tonight on Utilities Deal

The City-County Council Rules and Public Policy committee will be meeting tonight to vote on Prop 131 and Prop 132, which involve the proposes sale of the water and sewer utilities and floating an $189 million bond, respectively. The meeting is scheduled for 5:30 pm in room 260 of the City-County Building.

The Rules committee has amended Prop 131 to require that the final version of the actual sales deal come back before the Council for final approval. This is an excellent move and rightly values the Council as an independent arm of City government.

There are 4 fundamental issues regarding the sale of the water and sewer utilities to Citizen Energy, that I think are most important.

1) DEDICATION OF FUNDS: The proceeds from the sale (Prop 131) and the increased sewer utility PILOT (Prop 132) are not dedicated to street and sidewalk repair and installation. From what I hear, the Mayor's office is willing to look at inking down exactly how the money can be spent, but some on the Council want to leave it loose in case a future Council wants to spend it otherwise.

We heard verbal promises by the Republican Council and Democrat Mayor, Bart Peterson, on the first stormwater drainage fee that appears on property tax bills. The promise was that the funds would be used to finance new drainage projects, something the City had been unable to find the funds to do previously. Instead, the money went to pay off old debt for old projects and the money that had been budgeted for those debt payments went elsewhere in the City's budget. So, lots of verbal promises, but no written commitment on how the money could be spent.

We heard verbal promises by the Democrat Council and the Democrat Mayor, Bart Peterson, on the increase in County Option Income Tax, $5 million of which was promised to go to crime prevention grants. While some money has been so spent, the verbal promise was put to the side by the Republican Council that was voted into office in 2007. Now-President of the Council, Ryan Vaughn, and Councillor Ben Hunter, have been the most vocal about the fact that the old Council did not ink down the promise properly and that is why a) they voted against it originally, and b) why they did not feel bound by the promise.

Vaughn, Hunter, and others, are now in the position of voting for or against a proposal of a Republican Mayor, Greg Ballard, who has made verbal promises all over the County regarding how the proceeds from any sale would be (and would not be) spent. They have it within their power to commit to the promises being made. It is now their watch. The Council is up for election next year. The Council could again pass to Democrat control and out of the control of Vaughn, Hunter, and Ballard. If they mean what they say, they will commit to it in writing. This is as true of the spending of the proceeds of the bonds that would be backed by the increased sewer utility PILOT payments, as it is of the proceeds of any sale of the water and sewer utilities.

2) LOCAL PUBLIC INPUT: To move all oversight and public input to the state level for a local service is not wise. That is what they did with the oversight of the cable companies - and that has not worked out well at all for the customers. The Indiana Utility Regulatory Commission has shown itself to be best buds with the utilities they regulate. Marion County residents deserve a local say in a local public process, about local rate hikes and local expenditures. It is, after all, the public's water and sewer utility right now, and it is in their interest that they not be cut out of further issues that will arise. Mayor Ballard has said the one of the express reasons to sell the water and sewer utilities is because politicians don't have the stomach for raising rates. Well, that's not all bad. And, if you go in that direction, at least leave the regular citizens with a process where they can HOPE to influence the outcome of rate appeals that will pull more money from their pockets.

3) RAISING WATER/SEWER RATES INSTEAD OF TAXES: There is a fundamental question involved in all of this - should water/sewer customers pay for their water and sewer usage AND fund street and sidewalk improvements? There is no doubt that there is much need for infrastructure improvements in Indy. But, how to get the money to do it all quickly, is another matter. If the proceeds from the sale are not dedicated specifically to a very short list of possible types of expenditures - then why would anyone agree to increased water and sewer rates? If the funds were to be dedicated, in writing before any deal is finalized, then this question still remains on the table, in my view. I have to admit, I end up on both sides of this one, depending upon how I approach the question in my mind.

If I look first at the huge need for street, sidewalk, and bridge repair and then at the issue of passing the cost onto water and sewer utility customers, I can see a scenario where I could support it. First, the money would have to be dedicated or its off the table for me. Second, there needs to be local oversight of water/sewer utility in the area of protecting our water supply - both in quality and quantity. Not widely know, I think, is that the water company has been pumping water so rapidly from the Perry aquifer, that the underground flow of water into the aquifer has not been able to keep up. The water table has dropped 10 feet as a consequence. This is not trivial. Likewise, overpumping from reservoirs and inadequate water release into our rivers and streams can lead to damage to those biomes. Luckily, the City will retain the Eagle Creek reservoir, considering it a drainage control feature, and not primarily a drinking water supply. But, not all of the rivers and streams in the County can have their water levels increased or decreased by opening and closing the Eagle Creek dam. When I come at this question from this angle, I conclude 'maybe - if there are some other ingredients secured'.

If I look at the water/sewer rate payers first, then the need for infrastructure improvements, I land on the other side of the equation. These rates are going to go up -- way up. Just because the City projects the rate to go up less rapidly if Citizens runs these utilities, the rates are still going way up. There is something positive to be said about keeping the cost of living as low as possible. There are economic and social reasons to do so. This is not a trivial matter. The proponents of the sale are saying it is important to keep rates as low as possible - so sell the utilities. But, then they say - since there are savings, lets split the difference. When I come at this question from this angle, I conclude 'no' to utility rate payers paying for ANYTHING more than the water and sewer they use.

4) CLEAN, SAFE, DRINKING WATER IS OUR NUMBER ONE RESOURCE: This is the most fundamental point of all. Our area spends much of its resources trying to get rid of excess water - especially this time of year. But, that should not lessen the value of clean drinking water to us. I would recommend folks look over the April issue of National Geographic before coming to a conclusion on this point. "Water - Our Thirsty World" is the title. They go into the perspective in other parts of our Country and the world. Some of the titles of articles in this volume: "Water is Life", "The Burden of Thirst", "California's Pipe Dream", and "The Last Drop". I can't conclude that the City should give up its ownership of this resource. Run the utilities better, sure. Give up ownership of the water? No - I cannot go there.

Tonight the Rules committee will decide on whether to recommend the full Council pass the increased PILOT from the sewer utility and approve floating the bonds that would be repaid with that money, as well as approve the Mayor and Citizens continued resolution of the details of the sale with the proviso that the Council gets a say after seeing said deal. This very well may be the most important decision that this Council makes its entire term. Again, the meeting starts at 5:30 in room 260. Since public testimony was taken last week, there may not be any additional time for comments made available. Channel 16, as always, will carry it.

City-County Council to Take Up Water Company Sale

At Monday night's City-County Council meeting, two Proposals will be introduced related to the sale of the Water Company and the sewer utility to Citizens Energy. Both will be referred to the Rules Committee, which next meets on May 4th at 5:30 pm in Room 260 of the City-County Building.

The digest of Prop 131 reads as follows:

authorizes the transfer of the waterworks and the sewage works of the City of Indianapolis to Citizens Energy Group

The Memorandum of Understanding is incorporated into Prop 131. Also of interest are a few documents posted at www.indy.gov/utilities The list of links includes Q&A of Council questions, which has a lot of information in it.

The digest of Prop 132 reads:

authorizes the issuance and sale of revenue bonds to procure funds to be applied to the costs of the construction, renovation, rehabilitation and installation of improvements to the public ways, including roads, streets, alleys, trails, sidewalks and other public facilities, appropriating the proceeds derived from the sale of such bonds, modifying the amount of payments in lieu of taxes payable by the sanitary district

I suggest we get a lot of folks reading this one. It seems to be authorizing the issuance of not only $189 m in bonds, but $189 m in bond anticipation warrants, so that the City doesn't have to wait for the bonds to issue. I assume this is because Payments in Lieu of Taxes (PILOT) will secure the bonds and we can't be sure of the PILOT money until the IURC okays the sale of the water and sewer utilities. It also seems to be saying that $9 m in sewer utility PILOT money that currently goes to fund public safety will go to repay these bonds instead -- but somebody correct me if I have that wrong. This particular Proposal is a tougher slog to read through than usual. So, post here what you think it means.

Star reporter, Francesca Jarosz has a very good article in today's paper regarding the issues revolving around the proposed sale. For the life of me, I can't find it on the IndyStar website, so maybe its one of those paper edition only stories. I'll look at the Star site in another couple of days and see if it suddenly appears and post a link then. [edited on 4-27-10 to add link to IndyStar article: click here]

There are a couple of important issues that haven't been locked down, in my view, that really need to be. In no particular order:

1) For what will any proceeds from the sale be spent? The original intention was for streets and sidewalks. Now, I have heard included, streets, sidewalks, alleys, economic development, community gardens, downtown streetscapes for the 2012 superbowl, trails, 'other public facilities', and stormwater drainage. The longer the list, the less I am personally interested in supporting the sale.

2) How will the funds be dedicated so that they are spent on just those things promised? As an example of what can happen when funds are not properly dedicated, we have the annual discussion of why the community was promised $5 m in crime prevention grants for a portion of the income tax increases implemented by former Mayor Peterson and the Democratically held Council. After the Mayor's office and the Council switched control to the Republican party, they declined to spend that money as promised. What Councillors Vaughn and Hunter have been saying in response to questions is that the proposal was not written on the proper Council form and thus was never guaranteed to be spent as promised. Well, what assurance does the community have that these monies will be spent as promised? Without dedication of the funds, I will hesitate to support the sale.

3) How can the City stop the sale of the water company and sewer utility by Citizens Energy in the future? Alternatively - can the City take them back?

4) There needs to be a public process created for local input into water and sewer utility matters by the community. Citizens Energy may be open and interested in such input, but it is not mandatory. The IURC oversight provides little comfort in this arena, as they are viewed as too cozy with the utilities that they regulate.

5) This sale basically finances a 4 year blitz of projects with water and sewer rate increases - and then the money is all gone but the rate increases remain. In addition, the taxpayers of Indianapolis lose control of the most valuable of all natural resources, water. There must be assurances, perhaps in the form of clawback authority by the City, that the water cannot be sold outside of Marion County, no matter how high a price is offered by other municipalities or states in the future.

Those are my thoughts. There has already been much discussion, so make sure you look over exactly what the Council will be voting on - because if it isn't in writing, it does not count.