Thursday, March 29, 2007

Playing the Percentages

In yesterday’s discussion of city finances, many tax abatement misconceptions were dispelled but the issue of Indiana’s 2% constitutional debt limit was again raised. And, again, it was asserted that New Albany had unconstitutionally surpassed it by financing a small portion of the Scribner Place development. Ever vigilant, our Senior Editor asked an extremely pertinent question:

the new albanian said...
Con-Dem wrote: We are constitutionally bound to a 2% debt limit, which we surpassed with Scribner Place.

We hear this repeated all the time, but is that really true?


Con-Dem answered that it is.

The fact of the matter is that the City of New Albany didn’t issue any debt for Scribner Place. The New Albany Redevelopment Authority, as a legally recognized separate entity, did. The Redevelopment Authority’s 2% is calculated independently of the city’s, meaning that taken together they can issue debt equaling 4% of net assessed property value.

While that’s good information, it’s irrelevant in this and most cases of Indiana public finance. The bonds issued were done so as part of a lease structure, a perfectly legal and commonplace financing method not bound by the 2% debt limit. The truth is, Scribner Place financing doesn’t affect our debt limit at all.

As the State Board of Tax Commissioners explained in a preliminary fair market value report to an Indiana General Assembly study committee in 1996:

Local governments in Indiana, like most local governments throughout the nation, rely on the local property tax base to generate revenue to repay debt issued to finance capital improvement projects. Local governments can sell general obligation (GO) bonds which are supported by the full, faith and credit, or unlimited taxing power, of the entire taxing unit. But there are state constitutional and statutory provisions that restrict the ability of local governments to issue GO debt in Indiana. 


Article 13, Section 1 of the Indiana Constitution limits the total principal indebtedness of any political subdivision to no more than 2 percent of the net assessed valuation of taxable property within the taxing unit. The debt limitation applies to 2 percent of net assessed valuation, not 2 percent of true tax value. The constitutional debt limit applies to each municipal corporation individually, and not in the aggregate to municipal corporations which may cover the same area or include the same taxpayers. This has led to the establishment of many overlapping municipal corporations (e.g., school, jail) and special taxing units (e.g., special districts such as fire, library, parks and recreation, sanitation, and redevelopment authorities) that use the same property tax base as the general government to finance capital improvements.

Local government property-tax backed debt in Indiana consists primarily of non-GO bonds because of these debt limits. Most local property-tax backed bonds sold in Indiana are lease rental bonds. During 1992-1995, more than $2.3 billion in lease rental bonds were sold, compared to only $218 million in unlimited tax (GO) bonds. Lease rental bonds account for 88 percent of all of bonds sold by local entities in the state. Most general governmental and school corporation lease rental bonds are repaid directly from lease rental payments that are raised from property tax revenues.

Lease rental bonds are popular with local governments precisely because they are not subject to the 2 percent debt limit.


In our case, the city’s portion of the lease rental payments are covered with Economic Development Income Tax funds, with property taxing authority used only as a backup mechanism in order to secure a better interest rate.

In a discussion of TIF districts, Ball State’s Center for Economic and Community Development explains the lease arrangements thusly:

When other tax revenues are pledged to enhance a TIF financing, Indiana constitutional debt limit restrictions often dictate that the financing be structured as a lease. Under this structure, a separate entity known as a redevelopment authority is created by ordinance of the unit's legislative body. The redevelopment authority then issues bonds, constructs the project, and leases it back to the redevelopment commission. The commission then pays lease rentals to the authority from TIF and the other pledged revenues in an amount sufficient to pay the authority bonds.


Lease rental bonds are a fundamental method of local government finance across the country and have been since the 80s. Their use gives municipalities flexibility to finance projects while creating more attractive situations for investors.

As the Tax Commission clarifies:

Unlike most lease rental bonds sold throughout the nation, Indiana lease rental bonds do not contain an annual appropriation-out clause enabling the government to annually withhold debt service payments.

In effect, such lease rental bonds are structured as synthetic GO bonds. This provides Indiana lease rental bonds with two additional layers of repayment security that is absent most other lease rental bonds in the nation. The additional layers of security have been fine tuned over the years so that, research shows, investors favorably view Indiana lease rental bonds since they exhibit interest costs no different than GO bonds.


With weight loss inducing regularity, generally accepted modern practice has been met with alarmism and rumor mongering in New Albany. It’s difficult to tell exactly how such rumors get started, but it’s easy enough to figure out who preys upon the fears of those factions that insist on their perpetuance.

In a supposed statement of his core values, 3rd District Council Member Steve Price let’s us know that he was the one who informed citizens “how we by-passed the 2% constitutional debt limitation” in financing Scribner Place as if it were some sort of conspiracy he’d personally uncovered. Mind you, he’s the same guy who once told a room full of constituents that we were spending all of our EDIT money on Scribner Place. We’re actually spending less than 10%.

Given that important decisions need to be made concerning the other 90%, it might be best not to rely on 100% ignorance and those who think that's all we can do.

28 comments:

  1. Hmm, something tells me that before we see CM Price take to the blogosphere with a marquee retraction, his boogie-down phalanx of “fact masters” will take the stage to cover his ignominious retreat.

    I’m reminded of the May, 2005 meeting at S. Ellen Jones School, when CM Price did the late James Brown proud. I described it like this:

    ----

    On Tuesday night, Brother Price’s Traveling Deprivation Show staged a bravura performance at the monthly meeting of the S. Ellen Jones Neighborhood Association.

    3rd District Councilman Steve Price was capably supported by the hard-riffing “Fact” Masters, his female backing band, whose morose recitation of impenetrable and unverifiable rhythmic cadences freed the headlining Price to explore countless creative variations on a solitary, numbingly repetitive melody from his chart-topping single, “Paralysis.”

    We sure ain’t got no money!
    (cut the fat, cut the fat)

    Pertty soon we'll have less than that!
    (cut the fat, cut the fat)

    We got no in-for-mat-ion!
    (it’s the mayor, it’s the mayor)

    We just can’t get to the facts!
    (it’s that mayor, it’s that mayor)

    We ain’t got no account-ing that’s right!
    (we’re dumb, oh yeah, we’re dumb)

    Yeah, we’re gonna be deluged!
    Big troubles coming soon!

    How’re we gonna pay for it?
    (gotta run, gotta run)

    We ain’t got no money for downtown!
    (just let it go, c’mon let it go)

    We sure can’t pay to clean it up!
    (no no no no no no no no)

    We don’t know nothing.
    (never have, never will)

    We’re just helpless and lost.
    (watch the cost, watch the cost)

    We gotta stay scared.
    (all is lost, all is lost)

    We’re done and paralyzed … paralyzed … paralyzed.
    (all is lost, all is lost … fade to oblivion)

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  2. FACT: Steve Price repeats in open council session the trog mantra that we are violating the constitutional debt limit.

    FACT: His acolytes repeat it, too, on blogs and elsewhere.

    FACT: On Feb. 25, on "Steve Price ~ My Vision," the council member wrote "...I informed the citizens that our remonstrance rights were taken away when we voted for the Scribner bonds, as well as how we by-passed the 2% constitutional debt limitation."

    FACT: On March 1, at the candidate forum at Silver Street UMC, I asked the mayor what the hell the trogs were talking about. He confirmed what I thought, that we have done no such thing and that in fact, the city has no general obligation debt.

    FACT: Maury Goldberg has consistently provided me, and all of us, with the truth about city budgets, TIF areas, tax abatements, etc. Steve Price has not. Relying on a superannuated colleague and his delusional wife, he spouts off his version of the "truth," but bristles when he is called on it. I thought it was pretty much the unofficial slogan of NAC that you are entitled to your own opinion, but not to your own facts.

    FACT: For a blogger or a commenter to provide counterfactual information is one thing. It's quite another for a legislator seeking to be returned to office to be either so misinformed or so disrespectful of the truth.

    QUESTION: Who is Steve Price trying to fool? Doesn't he believe that after three years in office he should know what the hell he's talking about before campaigning based on his own ignorance or deceit?

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  4. A little knowledge can be a dangerous thing. Not sure who originally said that but it is true. It is also where the rumor mongers live.

    Just enough "facts" and you can make almost anything sound true. We see it every day on the blogs, especially certain ones. Good job shining the full light, Bluegill.

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  5. Thanks for the info...finance always flummoxes me. Which is why I worry about the city council being our tax watch-dogs. Like it would help if they understood the various financing schemes. NA Annie and I both researched govt finance and it's a complex ever-changing field. Clearly Mr Price is in over his head. I'm going with Harshfield at this point because he can understand finance. Hopefully, soon, "Elvis" and his groupies will leave the room, once and for all.

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  6. Lest we forget the promise of a New Year:

    ---

    Steve Price ~ My Sharona
    Thursday, January 4, 2007

    Welcome to my philosophy
    The intentions of this blog are to explain my views and thoughts about various issues, as well as lend some insight as to the reasons behind my voting record. There is so much more to the story than what you read in the various forms of media.

    While I welcome your comments and ideas, I have decided not to accept posted comments at this time. Please feel free to contact me either through email or at home. I am a true people person and enjoy one on one conversation. I have and will continue to be accessible to all people.

    Signing off for now, tomorrow is another day.


    Having eschewed the concept of public dialogue from the start, perhaps the CM's recent three+ week silence isn't all that surprising, although the metaphysics of saying nothing as a manifestation of accessibility bodes ill for any public "servant."

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  7. Speaking of finance, guess what one of our esteemed council members said, not once but TWICE, at the last meeting.

    "We need to bring the operation of the sewers back in-house. It was the biggest cash cow we had."(paraphrasing slightly)

    Cash cow?!?! I guess it was and look at the mess it got us in. Instead of maintaining and upgrading the sewers over the years, the money was spent on other things. How utterly asinine! No, it was not Mr. Price. It was Mr. Blevins.

    Several members of this council make it embarrassing to live here. I know, many of you have been telling me for a long time how "bad" some of the members are. Finally seeing and hearing it in person has made a believer out of me. Sad.

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  8. iamhoosier, I may be wrong as I had plenty on my mind that night but, I was certain it was CM Coffey that was uttering the nonsense on the sewers.

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  9. Coop,
    There was plenty of crap about the sewers being thrown around. Mr. Coffey had plenty to say during the sewer board presentation before the council meeting. While I would not be vain enough to say that I could not be wrong, I am 99% certain it was Mr. Blevins. The statement was made in the council meeting during the "discussion" on the proposed ordinance to hire a city sewer manager to oversee EMC. Unless I have my council member's names mixed up(possible), it was the same man who introduced the bill to investigate the sanitation contracts.

    Thanks Coop.

    Mark

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  12. Well, both of you are right. Mr. Coffey asked why we spent the SRF monies running the sewer line to Highlander Point rather than fixing the inner City; Mr. Gahan asked what was the minimum we had to do to get the EPA out of our hair.

    I would like to make a slice correction to Bluegill. The "small Scribner Place payment of $137,500, the pittance used to set Economic Development Director Paul Wheatley up for failure", would not represent an accurate figure. The money pledged from EDIT is $400,000.00 per year, not a mere pittance of $137,500.

    There is 1.5 million pledged to sewers.

    The total Edit 2007 budget is $1,430.274.

    Mr. Wheatley has at his disposal $35,000.00 for contractural services where we could hire contractors in to pave streets.

    There is also another $20,000.00 under "Other Services".

    There is TIF monies available in the Park East TIF ($1,174,704.17), the State Street TIF ($1,558,213.82).

    These monies could go a long way towards all of our goals. Redevelopment is paving our roads; purchasing some houses for renovation, etc.

    This information is available from the 2007 City of New Albany Budget (which still isn't approved, yet).

    Thanks for letting me air my opinions.

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  13. Sorry about that Bluegill -- make that a "slight" correction; slice, sorry.

    Babysitting this 3 year old has made this old grandma tired.

    Please forgive. Thanks.

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  14. A Demo,
    I don't believe that you are correct about the city pledging 400K from EDIT for Scribner. I am not as certain about that as I am about Mr. Blevins but pretty sure.

    By the way, what is your take on Mr. B's "cash cow" comment?

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  15. IAMOOSIER - the Council did allocated $137,500 for Scribner; but the Mayor kept the pledge for $400,000.00 in the Budget in case the County didn't come through. It's still there. Ask a Councilman to show you the EDIT Budget for this year.


    I did not hear the comment about the "cash cow"; but I did hear comments about them wanting to bring Sewers back in house and a lot of GROANS.

    Fund 04044 - is EDIT, which clearly shows the $400,000.00 for Scribner.

    Peace, NA -- back to the grandbaby.

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  16. Thanks for the answer.

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  17. Con-Dem,

    I'm well aware that Mr. Wheatley's budget includes $35,000 for contractual services. I published that same information here farily recently. That's the pittance to which I referred.

    Anyone involved in redevelopment knows that amount isn't enough to implement any sort of meaningful activity. That's not enough to pave one mile of one street or buy and renovate one house, let alone to develop a comprehensive approach to economic development.

    As I've also written here before, running one ad a month in the Courier-Journal would blow Wheatley's entire budget for the year. And yet, anytime Wheatley, our Economic Development Director, has requested additional EDIT funds for economic development, the Council has turned him down flat. They don't give him the money realistically necessary to do his job and then blame him for not doing it.

    The Council approved up to $400,000 in EDIT funds per year for Scribner Place knowing that the estimated payment would be $137,500 each year. It's not been well publicized, but the actual payment amount came in lower than that. It's $120,000 per year. That leaves $280,000 for other purposes each year after the payment is made.

    The majority of the TIF districts were set up to accomplish multiple projects in each area. Just because one project is finished and money is building in that acccount, it doesn't mean the original purpose of the TIF district has been fulfilled.

    I was at the Council meeting when CM Coffey raised the same issue that you have here, and he was asked which of the remaining projects he'd like to cancel. He didn't answer.

    It's also important to note that all preexisiting taxes collected in a district prior to TIF certification are going to the same places they've always gone. Only new property taxes, additional money generated after TIF implementation, are kept specifically in the TIF district.

    If an area generated $5,000 per year in property taxes prior to TIF and $7,500 per year after TIF, only the additional $2,500 is kept in the district to pay off improvements and/or promote development. The rest is used as always.

    And, again, it's a misnomer to suggest that any additional taxes collected outside of TIF restraints go directly to the general fund at a one to one ratio. It just doesn't work that way. The state decides what our budget is each year and makes adjustments as they see fit, regardless of what's happening with our tax base.

    They have very rarely, if ever, allowed for more than an approximate 5% increase in the budget, despite circumstances. Also, as I'm sure you know, property taxes are allocated to many other things besides the general fund.

    Besides that, the city currently budgets no general fund money whatsoever for redevelopment, nor has agreed to take on any general obligation debt for that or any other purpose.

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  18. Dont' really see an argument in your posting; simply saying the figure may have come in lower, etc., for Scribner; but, in the 2007 budget, the $400,000.00 is still appropriated towards same.

    So sorry, but I just don't read in my words where I said to pull "monies" out of non-TIF areas. I suggested using some of the TIF money in areas where there are some monies not encumbered by any bonds.

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  19. That's OK. I'm sure others understand.

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  20. Scroll above and read All4Word's post.

    Now, consider what Bluegill wrote:

    The truth is, Scribner Place financing doesn’t affect our debt limit at all.

    I'm looking everywhere, and I don't see where Con-Dem or anyone else has responded to this.

    But if Bluegill's statement above is uncontested and true, then it logically follows that my councilman has been lying to people about the city's debt limit.

    Straight up.

    This would seem to be siginificant, wouldn't it? And yet the silence after two full days is deafening.

    Just as the city's obstructionists pray for the day when the Great Federal Father of Retribution comes and ushers in judgment day -- when the faithful finally are rewarded with unlimited frolics in a styrofoam fountain from Wally World, gushing the cheapest generic soda that Dave Ramsey's money can buy -- I suppose we now look to Anna to settle this once and for all.

    But wait -- she already has issued a memorandum on the topic, or else Steve Price would have no view either way.

    Seems that both his opponents might be jumping on this one. Just remember to attribute your source.

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  21. New Albanian,

    Do you want the documents delivered to you about us surpassing the constitutional debt limit...or do we need to scan it.

    I didn't feel the need to go there; but unfortunately, it is true. This fact would be located in Redevelopment's minutes.

    Buddy Downs, of Ice, Miller and Donadio said "not only did we go around the constitutional debt limit -- they also took away citizens' rights to remonstrate.

    Not calling anyone a liar, New Albanian. It is a fact, though. It happened...

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  22. Actually, this could be quite helpful in unraveling this conundrum.

    Are you saying that the original source of the "surpassing the constitutional debt limit" claim is "Buddy Downs, of Ice, Miller and Donadio," and as he stated it before Redevelopment, as reflected by "Redevelopment's minutes"?

    I'm confused, because earlier you had written, "Don't really see an argument in your posting," and whether or not you intended this to cover all or just part of Bluegill's presentation v.v. the debt limit, you did not disagree with my co-editor's explanation of the debt limilt scenario -- until today.

    So, are you implying this: Based on comments in the Redevelopment minutes, Buddy Downs and Bluegill disagree about what the constitutional debt limit means?

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  23. Yes, but I still don't want to argue. Shane Gibson asked Buddy Downs, of Ice, Miller & Donadio, if what Steve Price (that dreaded name) was saying was true -- did we surpass the 2% New Albany's Constitutional debt limit and did we also not give taxpayers a remonstrance right. Buddy Downs nodded yes.

    It's something the sewer Accounting firm may need to know, also, as some of their sewer raises were worded in such a way that if that particular alternative (they had about four) was used -- we'd have to be careful and not violate New Albany's Constitutional debt limit.

    Hey, I never knew New Albany even had a "Constitution". Someone had to tell me about it and then I had to go and find it.

    No arguments with anyone though. I can only vouch the above is true. Hope we have come to an understanding. Thanks for allowing me to clarify more...it probably needed done.

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  24. So, if I'm reading all this right, CM Price either was given information to suggest that a "debt limit" was surpassed, or he formulated the notion himself based on his own research (unlikely, but possible), and then later, when asked, Buddy Downs agreed that it was true.

    But in the beginning, Bluegill wrote:

    The City of New Albany didn’t issue any debt for Scribner Place. The New Albany Redevelopment Authority, as a legally recognized separate entity, did.

    He then went on to explain:

    The constitutional debt limit applies to each municipal corporation individually, and not in the aggregate to municipal corporations which may cover the same area or include the same taxpayers. This has led to the establishment of many overlapping municipal corporations (e.g., school, jail) and special taxing units (e.g., special districts such as fire, library, parks and recreation, sanitation, and redevelopment authorities) that use the same property tax base as the general government to finance capital improvements.

    Local government property-tax backed debt in Indiana consists primarily of non-GO bonds because of these debt limits.


    Forgive my continued confusion, but seeing as there is agreement about some semblance of a Constitutional debt limit, and that Buddy Downs once said something about it in response to a question at a redevelopment meeting, was Downs in effect disgreeing with Bluegill's interpretion of the lease structure as a "financing method not bound by the 2% debt limit?"

    Is this the bone of contention?

    And, as an aside, many readers might not know who Buddy Downs is and why his opinion matters. Might someone enlighten us? After all, he appears to be the chief witness for the prosecution.

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  25. Dearest New Albanian,

    Buddy Downs handles a lot of bond issues for New Albany.

    As he told me once at a County meeting, "Yvonne, I was raised in New Albany". I'm still not sure what that statement meant.

    Maybe Steve had help from other Council members about that 2% Constitutional debt limit.

    All I can say is Shane asked Buddy if what Steve said was true and he nodded, or said yes, and he is entirely reachable by phone. Sorta like the guy, even though we've had some disagreements. Hasn't everyone, sometime or the other?

    Those GO bonds, let me check on that one... Thanks.

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  26. About that "GO Type of Bonds"; last year's 2005 year-end show our "General Obligation Bonds", which is what I am thinking Bluegill is referring to.

    This year the General Obligation Bonds are listed as "All Other"?

    Thanks for raising that issue for us; we totally missed that one!

    Good news about the paving in New Albany. According to training sessions by the City Clerk, Marcey, up in Indy; we do not have to "lease" TIF monies from one area to the other if they are going to pay for sewers (or other infrastructure as they were intended). The rules have changed on TIFS and EDIT.

    Hope this helps ALL OF US TO HAVE BETTER ROADS...

    Not to be facetious...but can't ya tell it's election time?

    Sewer Board's mandate was AFTER THE PLAN, monies were to be allocated to PUT THE ROADS BACK IN THE SAME CONDITION. They were only patched; as so many of us have witnessed -- everywhere they worked.... Sam LaHanis's feet should be held to the fire on this one...he oversaw the work.

    And I got hit over the head with a rolled up bunch of papers by the Mayor when they presented Big Sam with his "award" at that Council meeting. Twasn't kidding, Mayor, twasn't kidding...

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  27. Ya know, these comments are getting buried...let's carry out the rest of the debate over on mine -- what do you say?

    Thanks.

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  28. I'm game, but be aware that Bluegill's at the wheel as per our agreement. You might shoot him a mail, too (address in his profile, I think).

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