How The Carmel Redevelopment Commission Bankrupted Itself

Rick Sharp

The local media's coverage of the financial woes facing the City of Carmel and its Redevelopment Commission has been grossly understated. What you've primarily been hearing is that the CDC is facing some cash flow problems and wants to take advantage of lower interest rates to refinance some of its more than $300 million in debt. Fortunately, the Carmel City Council's President, Rick Sharp, has shared with the citizens of Carmel on his Facebook site how the CRC got in the mess in which it finds itself and why the City of Carmel must now bail out the entity funded with TIF revenues. Make no mistake about it. This is a bailout. It is not a simple refinancing to achieve better interest rates, and it should serve as a warning sign to the Indianapolis City-County Council that it had better start looking more closely at all the tangled financial webs created under the auspices of the City's dozens of TIF districts. If this sort of thing is happening in the state's wealthiest municipality, you can only imagine the unexploded landmines elsewhere around the state. Here's Sharp's straightforward, albeit frightening explanation of the CRC's disastrous borrowing practices it undertook to avoid transparency:

I am going to try to break up this explanation into digestible bites. In essence the Redevelopment Commission made two mistakes and they were made a couple of years back while Mr. Carter was President of the CRC. First they created a series of hybrid financial instruments in order to avoid bringing their proposals before the Council for review and approval. The problem lies in that without the credit rating of the City to back up their debt they got into some complex situations that include high interest rates and ballooning notes among others. We really do not know the whole story yet on these. The debt payments are eating them alive and this structure is not sustainable. Secondly, as we do this refinancing and insist they include other payments of debt currently foisted upon other entities, like the PAC Foundation, which serves as somewhat of a disguise, it begins to appear there will be little if any money avaialble to do additional projects. Completing City Center is something a majority of Council agree on but may not be possible to the extent public funds are needed.

The current situation with the CRC calls for comment. We, meaning the Council, had been advised for some months that the Commission needed to be restructured financially. We were prepared to do so to the degree it made sense. However, if the Mayor is going to continue to make statements that downplay or soft shoe the situation then it is clear to me that our help is not needed. The Council's advice and review was not wanted, in fact actively avoided, in compiling this mountain of debt and so I would say we are not needed in helping to solve what has been characterized as a "short term" cash flow problem. You do not solve a problem with this weeks paycheck by mortgaging your house!

The CRC cannot issue a Bond without Council approval. They did not want to subject their deals to public scrutiny or Council review so they created "debt instruments" but did not call them bonds. So the CRC has things called Certificates of Participation and Installment Purchase Contracts or just good old fashioned Lines of Credit. The problem is that these items are all secured by TIF repayment; they are first in line with a claim on any TIF revenue. This is where the problem comes in for you and me. The PAC bond is NOT secured by TIF. If they spend all the TIF revenue and there is not a sufficient amount left to pay the PAC bond they, the CRC, will levy a "special benefits tax", on all the real estate in Carmel, to pay for the bond. This is precisely why the Council has voiced concern for the last 3 years about the CRC's spending. We were told, by suppporters like Mr. Carter and Mr.Worrel, that we just did not understand how things worked. Turns out we understood only too well!

So now we are faced with a decision...refinance $195 million in debt racked up, unwisely in my opinion, by the CRC or allow the citizens to be taxed to pay back the $80 million PAC bond. My thought, at this point, is that we can refinance and stabilize the CRC and eliminate the threat of any tax by controlling any future debt issues. I think when we get to the bottom of this whole fiasco and we will find that they have spent all their treasure and we will have little to worry about because they will have no money left to do any further redevelopment. A sad state of affairs for one of the wealthiest redevelopment districts in the country and something for which I think their leadership should be held accountable.

The IBJ's Kathleen McLaughlin has a story today where the financial consultant at Umbaugh & Associates hired by the city to assist in the debt refinancing likened the situation to paying off credit-card debt through a consolidation loan. According to her story, the CRC has annual operating expenses of about $3 million currently, which it plans to cut to $1.1 million. The CRC has a 6-member payroll with annual costs of $462,505 and spends about $220,000 on legal and accounting services. One commenter on the IBJ's website asks about a $10 million loan the CRC owes the National Bank of Indianapolis of which the IBJ's owner and publisher, Mickey Maurer, is a major shareholder and board chairman. I haven't seen the loan disclosed in any of the IBJ's coverage of the CRC's debt refinancing.