Indianapolis officials are asking the City-County Council to approve $55 million of notes to proceed with a criminal justice center project.
It’s the second leg of financing needed for the $571 million project and follows a $20 million draw note approved in July 2017 to finance design work on the planned courthouse, sheriff’s office, jail and assessment and intervention center.
Both the $20 million approved in July and the $55 million in bond anticipation notes are secured by local auction income tax but the borrowing will ultimately be paid off by bond proceeds. The Indianapolis Bond Bank will serve as conduit issuer for the debt on behalf of the council, the legislative body for the combined government of Indianapolis and Marion County.
“So really it’s just backed by local auction income tax LOIC and it will be refunded by ultimate bond issuance,” city corporation counsel Andy Mallon said in a presentation before the Administration and Finance Committee Jan. 16.
“The next step in borrowing if we get approval will be to go out and get $55 million to get the ground ready,” the Indianapolis Bond Bank’s executive director, Sarah Riordan, said in a phone interview. “If it passes it will indicate that much more commitment of support for the project going forward.”
No firms have been selected for the deal, Riordan said; that will come after full city approval.
The committee approved the $55 million authorization, which would allow the government to move ahead with the purchase of 140 acres at the former Citizens Energy Coke & Gas Plant and property in the adjacent Twin Aire neighborhood east of Fountain Square.
The proposal heads for vote before the full City-County Council Monday.
“This is the next important step in a process that began over a year and half ago,” city corporation counsel Andy Mallon told the committee.
The $55 million will be used to acquire the land and get the site ready for construction.
Roughly $30 million would go to prepare the ground to start building the facilities. Mallon said that paying for the initial ground site work, which involves getting the ground ready for construction, could produce a cost savings for the city.
“The risk in any construction project is when you start digging and rather than build that risk into the jailhouse or courthouse project; we are going to tackle it now,” he said. “That keeps the risk out of the pricing of the design- build process. If the risk doesn’t materialize we get to save that cost.”
Approximately $15 million would be allocated to the design-build teams to proceed for mobilization and final design.
“Once we have selected a team for jail and team for courthouse that is when we go to the bond market,” said Mallon. “It will take 90 to 120 days to get the process completed and rather than let those teams just sit this provides $15 million to get them going before the bond financing closes.”
The remaining $9 million would go to construction management services.
On Dec. 18, Indianapolis Mayor Joe Hogsett announced the city had reached a $4.2 million deal to buy and lease land for the new criminal justice center. The city had agreed to purchase 140 acres from Citizens Energy on Indianapolis' southeast side. The city would buy some parcels for $2.1 million and lease others for another $2.1 million.
Indianapolis would take full ownership of the land once environmental remediation work is completed on the site, which once housed a plant that made a solid carbon fuel called coke. Mallon said that Citizens has already received regulatory approval to move forward with its remediation work plan.
Riordan said in the Tuesday presentation that roughly $4.7 million of the initial $20 million in already approved funding for design work has been drawn down. “The design work is ongoing,” Riordan said. “The $15.3 million left is all programmed and will be spent by the summer.”
The city plans to issue 35-year lease appropriation bonds that will take out the notes and cover the entire $571 million of project costs.
The city plans to return to the council for approval for the remaining $496 million in costs but Riordan said its uncertain if it will do so all in one chunk or piecemeal as financing needs arise. “We would probably need to do one more financing in third quarter of 2018 but it may not make sense to issue the full amount all at one time because if we do that we may not need it all at once,” she said.
The county retained the services of HOK, the same international design firm hired by Mayor Greg Ballard in 2015. Ballard's failed proposal called for the justice center project to be privately financed, constructed and managed at a cost of approximately $408 million. The City-County Council didn't approve Ballard's plan citing uncertainties about the financing model and the extent of the project.
HOK put together a rough outline of square footage and the county has based its cost estimating on that. The county also hired Sycamore Advisors to work on the project costs.
Rising interest rates are a concern. Diana Hamilton, president of Sycamore Advisors, warned in a presentation that since last July interest rates have risen about one quarter of 1%. That’s raised the projected costs of debt servicing by about $1.1 million to a projected $36 million.
“This is lease debt and we cannot pay a lease until its full occupied and that won’t realistically occur until 2022 so that means you have to bond for all of the interest for all of the years you aren’t occupying,” said Hamilton. “If we issue now that amount is north of $76 million.”
Hamilton said the next step is to do a break-even analysis that examines the costs of doing a large issue now versus coming to the market in pieces as needed.
Officials expect to pay off the lease appropriation bonds from savings created by new facilities. Debt service payments are anticipated to cost the county and city about $37 million a year.
No tax increases are needed, officials said. The project will consolidate city and county offices currently housed in leased locations throughout the city.
About $35 million in annual savings are expected from the expiring leases for those offices.
Hamilton said that it’s unlikely that the debt issuance next year will hurt the county’s triple-A ratings because the bond will be paid from a re-dedication of funds.
The state-of-the-art facility will include an adult detention facility, a courthouse, office space for the sheriff's department, and an assessment and intervention center for people who have untreated mental health or addiction issues.