Tuesday, October 25, 2011

The Tale of the Broad Ripple Parking Garage: Taxpayers Pay to Build the Facility While the Developer Gets 100% of the Ownership and Revenue


Proposed Broad Ripple Parking Garage
A source in City government recently provided me with a copy of the Broad Ripple Parking Garage contract.  I spent several hours pouring through the contract and now am ready to offer my review.   (Unless otherwise indicated, the information below is an analysis of Section 10, that runs from p. 14-16.)
  • The contract discusses two funds, the “Project Account”and the “Developer Funds.” The “Project Account” is an escrow account maintained by the Disbursing Agent.  (see page 6, Project Account" definition) which is to be made up in total of the $6.35 million of the City’s payment under the contract. The “Developer Funds” consists of the construction loan taken out by the Keystone (see page 2, "Developer Funds: definition) There is no requirement that Keystone take out a construction loan or how much needs to be borrowed.
    
  • The City is to pay $6.35 million for 10 years of rent of a police substation to be located located in the garage.  The money is to be paid upfront as discussed below.  Although the money is designated as "rent," (see p. 2, "DMD Purchase Price" definition), elsewhere in the contract the $6.35 million is designated to be used to purchase and build the facility. My guess is that the parties are calling the $6.35 million "rent" rather than a gift from the City is to somehow limit Keystone's tax liability.  I'm not sure the IRS would be amused.
  • 
  • Despite the payment, IMPD will have to pay a proportional share of the utilities at the parking garage.  After the 10 years expires, the IMPD has to pay rent at "market rate."  (See page 4, "IMPD Lease" definition.)
  • Regarding the $6.35 million upfront payment, the City first puts puts $1.9 million into a “Project Account, " and escrow account held by the Disbursing Agent. That money is  paid to the developer at the time of the execution of the contract (which occurred on September 2, 2011) to pay for land acquisition and construction costs incurred by the developer.
  • The City later puts the remaining $4.45 million into the "Project Account." When the City does this, $1.275 million gets paid out to Keystone for documented land acquisition and construction costs.
  • The remaining $3.175 million of the City’s money (which at this point is 50% of what has been deposited) contained in the Project Agreement is then paid to Keystone for construction costs on a proportionate basis using a “fraction.”
  • 
    Former Deputy Mayor
    Paul Okeson now works
    for Keystone
    
  • The “fraction” used for the proportion is $6.35 million divided by total "Developer Funds," which consists of any funds the Developer borrows.  According to the agreement,  $6.35 million is the Numerator, the Developer Funds is the Denominator. So let’s say that the Developer borrowed $9 million and for simplicity sake we’ll use $6 million for the City’s share, then the fraction is 6/9 2/3. So the math on a $3 million of additional bills Keystone presents for payment, the city pays $2 million while Keystone pays $1 million.
     
  • There is nothing in the contract, which stops Keystone from borrowing less than $9 million, thus making the Developer Funds less and changing the fraction in their favor. Let’s say Keystone borrows exactly $6.35 million, so the ratio is 1/1.  then any bills then any bills are 100% paid for by the City until the $6.35 million Project Account fund is exhausted.
  • Once the $6.35 million is exhausted, then, and only then, is Keystone responsible for 100% of the construction and land acquisition costs.  However, as reported a parking garage of the type designed typically costs in the range of $6 million.
  • There is absolutely nothing in the contract supporting the City's suggestion that the garage will somehow cost $15 million, contrary to the much lower figure other garages have cost.
  • There is absolutely nothing in the contract that requires Keystone to put up a dime for the project.
  • Keystone (actually the entity created for the project is 6280 LLC) gets 100% ownership of the garage, 100% of the parking revenue and 100% of the rental money for the 20% of the space in the garage devoted to commercial.
  • The $1 buyback option is a myth.  For the City to buy back the garage the formula is $1 + $10,000 ("transaction costs") + 80% of at least $6.35 million, i.e. the cost of the garage and land acquisition. (See p. 3, "Garage Acquisition Price" definition.) (Note: we would not be buying buck the 20% devoted to retail space.) Nonetheless the $1 buyback provision expires after five years.   (See p. 3, "Garage Option" and "Garage Option Agreement" definitions.
In this City we have seen sweetheart deals with the Pacers and Colts, and most recently the ACS contract in which we agree to give away 70% of the revenue of the City's parking meter revenue for the next 50 years. But this Broad Ripple Parking Garage deal is the sweetest of the sweetheart deals.  We taxpayers put up the money to buy the land and build the garage.  Yet the developer gets 100% of the ownership of the building, 100% of the parking revenue, and 100% of the money from commercial rents in the building. There is no requirement, none, that Keystone put a dime into the project.

Unbelievable.

16 comments:

varangianguard said...

Good Government, the Republican way.**

note:
** Marion County, Indiana version. Paid for by YOU, the taxpayers.

Hey, it worked for Jim Irsay, why not me too? That's the slogan for the "Friends of Kyle Walker"®.

LTC the Mayor, 'I signed it while I was in the buffet line at one of my bi-daily free media events. They wouldn't let me eat until I signed. So, I signed. B-T said it was OK.' (some artistic license taken).

Paul K. Ogden said...

The selling out the City's taxpayers by Indianapolis politicians is a bipartisan affair. Ballard has just cranked it up to a new level. We're no longer even keeping ownership of the buildings we pay for anymore.

varangianguard said...

OK. I'll grant you the bipartisan effect in this.

But, Republicans have ruled here so long that any Democratic effort seems amateurish copycatting.

HOOSIERS FOR FAIR TAX said...

I worked hard day and night for four months to help Ballard move from no name regognition to winning the biggest mayoral upset in the country.

Where's the sweetheart deal for taxpayers? We should at least get ownership of the buildings we buy.

Paul K. Ogden said...

Not sure what you're talking about Varan. From 2000 to 2008, the Democrats had the Mayor office and from 2004 through 2008, they also had control of the Council. The 2007 election was an aberration. The D's dominate in Marion County.

varangianguard said...

I'm talking about from 1968 until today. 32 years of uninterrupted Republican rule around here. Bart Peterson was a glitch in the Republican-Unigov manipulations.

Paul K. Ogden said...

Varan, while the R's have held Marion County for most of Unigov's history, those days are long over. Marion County is now a strongly Democratic County, the baseline is 10 to 20 points. We will have a Democratic council come 2012 (and maybe a Democratic Mayor). The D's will probably control this county for the next several decades. All the county elected officials now are Democrats.

varangianguard said...

I was talking about traditions and traditional behavior patterns.

In my memory, Republicans have ruled the roost around here. But, I suppose many spent more time at the old Red Garter (IIRC, just south of Washington on Capital) than they ever did at the Roost (too far from downtown). roflamo

guy77money said...

So what happens when all of the tif money and any extra revenue our politicians can beg, borrow and steal completely runs out? Do they bite the bullet and raise taxes? Cut services to the citizens to the bone? We can't be to far from scenario. The federal government will no longer be able to bail us out. So is Indy not far from becoming the next Detroit? Ya go to wonder.

Had Enough Indy? said...

guy77 - you've hit a few nails on the head with your comments. You have to add graft into the mix. Everyone wants get their hands on the rebuildindy money - and the welfare of our city can take a back seat to making sure those with the right connections get most of the gravy.

Pete Boggs said...

If that's the case, why can't taxpayers file suit for their share of the loot?

Had Enough Indy? said...

Thanks Pete - that was funny !

Jon said...

Is the parking garage contract legalized theft of tax dollars? Why aren't any of these shyters facing a grand jury? At the very least this has to be malfeasance doesn't it?

marksmall2001 said...

Excellent points raised here. But:
1) Indy could not be another Detroit as we do not have a navigable river that runs by us. That makes the skyline of the Motor City picturesque from over in Windsor, Canada. 2) We do not have professional baseball and hockey franchises. If we did we could be getting "there" much more quickly than at present. Plus there would be the community depression of having four professional teams with losing records instead of only two. (Yes, the Indians are professional, but AAA level; not MLB.) 3) I am not certain but I believe we have more vacant buildings and lands than Detroit. I know we were ranked #2 in the country last week. If Detroit was #1, then my mistake on that point. 4) We are not in Michigan.

Cato said...

How is this not criminal?

These guys steal more in a day with a briefcase than the street thugs take, all year.

Cathy Walker said...

Oh this would surely leave a "?" on my face. Where's the sweetheart deal for taxpayers? We should at least get ownership of the buildings we buy.

Parking Indianapolis