Sunday, May 16, 2010

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 -- 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.


Gary R. Welsh said...

I didn't get a chance to ask the question on Friday, but I don't understand why Citizens pays property taxes on its current utility since it is a nonprofit, public benefit corporation. Other nonprofits don't pay property taxes on their real property.

Yoda said...

I agree that this should not pass. How many times have we been promised that we will be getting a benefit out of something from the government only to learn that it will cost double or triple in the end.

There are already too many exceptions in the tax base in Marion county. Decatur township is very familiar with a lack of tax base.

Larry Williams said...

This is just another scheme to steal money from the "citizens" via Citizens.

Citizen Kane said...

Citizens should not pay taxes, particularly on sewer and water utilities that are now non-taxable. Again, this is a fraudulent scheme to create money out of thin air like a magician pulling a rabbit out of his hat. It is just a trick - a trick that will cost us money and get most of these clowns re-elected.