CHICAGO — A local dispute over a $150 million performing arts center prompted the Indiana attorney general last week to issue an opinion ruling that redevelopment commissions can issue some types of debt without the approval of a city’s legislative body.
The opinion applies to redevelopment commissions — which are considered special taxing districts — across the state. It stems from a dispute in Carmel, north of Indianapolis.
The Carmel Redevelopment Authority originally issued $80 million of debt to finance a concert hall and theater. When bond proceeds ran out in 2008, the agency — expecting political opposition from the City Council — issued $45 million of so-called installment purchase contracts.
“I think the redevelopment commission thought they didn’t have the votes in the City Council to do it, and they said, 'Hey, there’s another alternative here,’ ” said Carmel Mayor Jim Brainard, who has been mayor for 15 years and is the arts center’s chief supporter.
The new debt is actually senior to the $80 million of original bonds. Tax-increment financing revenue is expected to pay off all the debt, but if it falls short, the city is required to increase property taxes to pay off the 2005 bonds, officials said.
The state auditor’s office, which provides oversight of local government finance, earlier this year asked Attorney General Greg Zoeller to rule on whether the authority can take on certain obligations without City Council approval. Zoeller’s opinion is considered legal advice to the auditor, and his office would not comment on the ruling.
Council members opposed to the new debt said it put Carmel at risk of a property tax hike if TIF revenue drops off.
“If you read the bond documents, you’re about as exposed as you can be,” said council President Rick Sharp. If TIF revenue proves insufficient to pay off the debt, “indirectly the redevelopment commission has levied a tax on real estate throughout the city of Carmel. And that’s certainly beyond the scope of their authority.
“It will be interesting to see if the legislature will address closing these doors,” he added. “The ruling was a very narrow literal interpretation of a state statute with no regard for the legislative intent of imposing restrictions on redevelopment commissions to take on debt.”
Brainard estimates the city is paying 5% interest on the installment contracts. That is about the same rate it pays on the 2005 double-A rated bonds. The mayor estimated that current debt-service coverage totals around 106% — or just over one times — which he admits is thin. “The recession hurt us a little bit,” he said.
Redevelopment commissions are still required to win city council approval for most types of traditional long-term debt, Zoeller wrote. But they are allowed to take on certain kinds of obligations related to local redevelopment projects, such as warrants associated with leases.
“As a general rule, redevelopment commissions and redevelopment authorities have statutory authority to incur financial obligations to local redevelopment projects without the approval of the city common council,” Zoeller wrote.