The Invisible Hand(out) of the (Taxpayer Financed) Market

The war between cities and regions to attract business development generated the handouts known as 'incentives', 'tax increment financing', 'abatements', and more - a virtual cottage industry in how to funnel taxpayer funds to well connected developers.  There are more noble goals in play at the same time, like, hoping for a catalyst to spur private sector investment.  But the subsidies don't seem to ever end.

We have seen this cottage industry begin to morph from incentives to entitlements - industries that are begging for land upon which to develop, still expect hefty abatements to "level the playing field" and they no longer even try to tie job gains with those tax benefits.

Now, quietly yet out in the open, there is another transformation happening - the perpetual enrichment of favored landowner through taxpayer funded inducements for development upon leased real estate.

The North of South/City Way investment of about $100 M of taxpayer money involved development of the housing/retail/hotel/fake tech park built on top of land leased from Eli Lilly.  How much cash flow that provides Lilly is - well - none of your damn business, Ms. Taxpayer.

While the land lease model worked out in City Way, it does not always go so smoothly.  The airport has been trying to lease prime real estate where its old terminal used to be.  It has prominent frontage along I-465 and enviable access, not to mention an already existing parking garage.  Plus the old building has been torn down and hauled away.  Height restrictions do play a role here, but there is also the ingredient of who would want to lease the land upon which to construct a building.  Even a fifty year lease will find a day when the tenant must either re-up the lease or move on -- and at what cost?  The only offer they have noted in public has been a casino complex - which I personally root for, but the point here is the paucity of interest.

Last night the City-County Council voted to float $75 M in TIF bonds for the 16 Tech project.  Roughly $55 M would go to move water lines, power lines, and gas lines, and build a bridge and a park - all of which will make the land owned by IU Foundation, IU, Beurt R & Corena J  Servaas, the Benjamin Franklin Literary Medical Society, Health & Hospitals Corp. of Marion County, and Methodist Hospital much more valuable.  Yet, this land will be leased to eventual developers, not sold for the development.  But, it gets even better for these entities - 16 Tech Community Corp has been set up and will be funded by the rest of the bonds to the tune of just over half a million a year (with salaries ranging from $30,000 to $200,000) and their job will be to market the property to developers - so that these not-for-profits don't have to lift a finger or pay a single salary in order to cash in on the taxpayers' largess.

All that said, this one kind of amuses me.  I like the area in question getting a leg up and I like trying to promote biotech for the long run.  I do wonder, though, how viable the land-leasing model will be. In worst case, Mass Ave and Union Station and Circle Center Mall and the rest of the consolidated downtown TIF can all contribute to paying off the bonds.

I've wandered off the point of this post.  What we now have are the taxpayers being expected to fund a quarter to a third of all downtown development AND sustain abatements that need not include increased employment ALL THE WHILE our investments are quietly generating a perpetual revenue stream to well connected landowners.

Brian Mahern Comments On Disaster Bonds for No-So/City Way

Today's paper had a letter to the editor from none other than Council Vice President, Brian Mahern.  In it he takes the Ballard administration to task for using disaster relief bonds for the North of South (aka City Way) project instead of for, well, disaster relief.  Here is part of what he had to say:

The City Way complex consists of a luxury hotel, high-end apartments and swanky retail shops. Its developers benefitted from two forms of disaster aid, which were created in response to extensive Midwest storm damage in 2008, despite no logical reason to do so. 

Both $70 million in low-cost disaster relief bonds and a $6 million disaster relief grant were used to fund the private City Way development at a site untouched by storm damage. Meanwhile, affordable apartments like Falcon Pointe on the Far Eastside are still being slowly repaired from tornado damage four years later without so much as a penny of disaster aid. 

Mayor Greg Ballard’s effort to funnel precious public disaster aid to a fancy Downtown development while ignoring the legitimate recovery needs in outlying neighborhoods is inexplicable and unconscionable. One can only hope that the next round of aid for the more recent tornado victims in Southern Indiana is used solely for their benefit.

Six Councillors Stand Up for the Taxpayers

On Monday night the full City-County Council took up the issue of whether or not the North of South (aka City Way) boondoggle warranted a Certified Technology Park status (see "Taxpayer Fleecing for NO-SO (aka City Way) Continues").  Six Councillors stood up for the taxpayers of Indiana and Indianapolis and voted 'no'.

The six were Democrats Adamson, Brown, Gray, Hickman, Mahern, and Oliver.

All remaining Councillors, with the exception of Hunter and Mansfield, who were not present, voted in favor of declaring shops, hotels, and a few apartments, with their attendant minimum wage jobs, the very high tech jobs we need to be attracting to our City.

To view the discussion, click here and then scroll down to Prop 66 under "all items".

Councillor Brian Mahern began with a statement, in which he clearly outlined the lack of an actual high tech component.  He also mentioned the $98 million financing for the City's loan to the developer was with Federal 'Disaster Relief Bonds', which just might have been put to good use in Southern Indiana about now.  Excellent point.

Councillor Zach Adamson, who voted against the boondoggle in Committee, also made a statement - saying outright that "Designating City Way a CTP is dishonest and would further add to justify the distrust the public has in its elected officials".  Exactly.

So, from one taxpayer, thank you to all six Councillors.

City Way - The Rebranding Of North of South

You know that a deal stinks to high heaven when the powers that be are forced to rename it.

So it went the other day, when Mayor Greg Ballard helped break ground on the renamed North of South (aka No-So) project.  The new name is City Way (aka City No Way To Run A City).  Lest the Google bots not find sufficient linkage between the worst deal for taxpayers to come out of the Ballard years as Mayor and its new name, let me provide some contextual linkage here.

City Way is the new name for North of South.

This project takes all of the risk off the developer and puts it squarely on the taxpayers of Indianapolis.

The taxpayers loaned the City Way (No-So) developer $86 million that it got by floating a $98 million bond that was secured with property taxes gathered from the Consolidated Downtown TIF district.  The developer gets to pay the loan back with whatever money it would pay in property taxes on its development, in effect granting the developer a 10-year 100% abatement on the project.  Should part of the project be profitable, swell -- the developer can pay back the City for that portion and pocket the rest of the profit.  Should part of the project be unprofitable, no problem -- the developer can default on that portion despite the fact the rest of the project is profitable.

The developer is supposed to seek refinancing for the project in ten years.  But, the City floated 30 year bonds - and whether or not the City will use the money to pay off the rest of the $98 million bond at that time is anyone's guess.  Should there be a problem with the development, no problem - the City will  foreclose on it and add millions more taxpayer money to finish it.

The City will also put in some $9 million of streets and sewers and parking meters.

With about 30,000 square feet of office space and, hopefully one small wet lab, the State of Indiana designated it a Certified Technology Park and tossed a free $6 million to the developer. 

Eli Lilly stands to benefit substantially.  Although they are credited with donating $30 million to the project, half is a way early payment from the City on another TIF district set up specifically to benefit Lilly and half is credit for the value of the land upon which City Way (No-So) will be built.  The latter is not really a contribution, as Lilly will retain ownership and lease the ground to whomever owns the buildings erected on it. 

The developer is only putting up $6 million.  The developer could not get a bank to finance the deal. So, Mayor Ballard stepped up and put the taxpayers on the hook.

Hopefully the Google bot has enough clues in this blog entry to make sure that City Way and North of South both come up whenever City Way is the search term.  The taxpayers of Indianapolis need a good historical record about how huge a boondoggle this City Way (North of South) project is.

If you want more information about the City Way boondoggle, you can read my earlier blog entries "North of South - Details of Proposed Deal", "No-So Field of Dreams - Lie And They Will Build It", and "No-So Deal Worse Than Even I Thought" for the highlights.