Monday, September 2, 2013

Ballard Administration's Attempt to Mortgage Indianapolis' Future is Rebuffed by Council Democrats

You know things are really going wrong in Indianapolis when Republicans go so far to the left that Democrats become the party of fiscal conservativism.  Thursday night it was the Democrats on the Council acting as grownups, rejecting what was obviously an extremely misguided and fiscally irresponsible measure that would have mortgaged the next generation for some upfront cash.

Proposal 13-250, heard by the Public Works Committee, would have allowed the city to float $150,000,000 in 30 year municipal bonds "to finance certain street, road, curb and sidewalks improvements."

Department of Public Works
Director Lori Miser
In short, the measure would have allowed the City to continue its RebuildIndy program, a massive infrastructure program began three years ago using money the City obtained from the sale of the city's water and sewer utilities to Citizens Energy.  There is only $20 million left from the $400 million received from the sale.  As been noted on these pages before, the money the City received was not "free" money.  To pay the City's purchase price Citizens had to take out a 30 year loan.  We the public, who own Citizens Energy, have to pay that loan back. The sale was like a wife taking out a loan to buy a car from her husband, then her husband spending the money ignoring the fact that household income still has to be used to pay back the car loan.

Back to Proposal 13-250.  $150 million would be borrowed using 30 year bonds. The money though would have to be spent in three years, no more than $50 million per year.  Public Works Director Lori Miser repeatedly insisted that under the ordinance the City could borrow as little as $135 million, which fact she for some reason seemed to believe was a key selling point but no one took seriously.  For good reason.  If there is one thing I learned about how the current administration operates it is that any loan or tax authority will be maxed out. Therefore, Pat Andrews of Had Enough Indy's excellent take on this issue, my analysis of the bonds will focus on the $150 million figure.

Under the ordinance the City is authorized to sell the $150 million in bonds to the Bond Bank for no less than 98% of par value.  That means the Bond Bank can buy the $150 million in bonds from the City for as little as $147 million.  So we lost $3 million there.

The ordinance caps the bond interest rate at 7%.  Deron Kintner, Deputy Director and counsel for the Indianapolis Bond Bank who strangely is also Deputy Mayor for Economic Development (conflict of interest anyone?), however, said the current interest rate is projected to be about 4.99%.  The ordinance caps the interest at 7%.    Kintner indicated that debt service (the monthly payment including principle and interest) on the 30 year bond would be about $9 million.

Well, Kintner conveniently rounded that down.  The annual debt service is $9,651,792.  Over the course of 30 years, taxpayers, on the $150,000,000 bonds would have to pay back $289,553,741, i.e. that $150,000,000 bond would cost $139,553,741 in interest plus the aforementioned $3 million.

During her PowerPoint presentation, Miser went through a number of projects that could be addressed if the Public Works Department received the money.  To further entice councilors into voting for the proposal, a longer list of possible projects were provided not all of which could be covered be addressed by the $150 million.  Some of the Democratic councilors, most notably Pam Hickman and Zach Adamson picked up on the fact that many of the projects were repaving and sidewalks, improvements that aren't going to last anywhere close to 30 years.

Controller Jason Dudich attempted to come to the rescue saying that part of the requirement of getting the money is that any improvements have to last 30 years, which seemed to contradict Miser's
Councilor Ginny Cain
emphasis on repaving projects for which the life expectancy is much shorter.  But the requirement is actually that the projects funded by the 30 year bonds only have to have an "average" life expectancy of 30 years.  Who conducts an audit to determine that the life expectancies assigned to the improvements are accurate and that the average is 30 years?  My guess is no serious audit is conducted because the City didn't seem in the least bit concerned that the list of improvements would fall short of that 30 year requirement.

How would the the annual $9,651,792 tab for this $150 million debt be paid?  Several taxes were identified in support of the revenue bond including the county motor vehicle excise tax, county wheel tax.  (In Proposal 13-252, a measure later tabled by the Public Works Committee, the Ballard administration had proposed eliminating the sunset provision on the excise and wheel taxes.)   The major revenue source identified, however, was $7.8 million in state gasoline taxes sent to Marion County most of which is eligible to be spent on road projects. This was identified as a new source of revenue.

When asked if they could guarantee the revenue source would continue, Miser and Dudich insisted that state officials have made a "commitment" that the gasoline tax revenue would continue to flow to Marion County.  Later, however, Dudich and DPW Deputy Director Andy Lutz admitted that new tax revenues would have to be "found" to pay back the loan.  (Lutz was particularly adamant in saying "the gas tax is not the answer.")   Nonetheless, the admission that new tax revenue would have to be found did not stop administration officials and the two councilors on the committee, Ginny Cain and Janice McHenry, from insisting this was could all being done without a tax increase.  Cain and McHenry were thrilled about the possibility about spending the next generation's money on projects in their districts for the next three years. Cain pointed out that she's a councilor NOW and who knows where she will be in 30 years?

So the administration and Republican councilors wanted to take out a 30 year bonds, which money is to be spent in three years on improvements on road paving and sidewalks, i.e. many of which improvements won't last anywhere near 30 years. And the revenue source which is to be used to repay the 30 year loan is so uncertain that administration officials admit that another source of revenue will have to be found to pay for the borrowing.  How irresponsible can Republicans be with the taxpayers money and the future of our children and the future of Indianapolis?


donnie harris said...

Tax the wealthiest
1% to cover this.

Had Enough Indy? said...

Great job, Paul. Why do I continue to believe what this administration says - clearly I should have read the actual proposal. 7% interest allowed? Nutz !

I'm glad you caught Cain's comment. I jotted it down when she said it. You'd think Councillors would care about what shape they leave the City in when they are gone - not just how much money they can pull from future pocketbooks to spend now. What a jaundiced view that woman has.

Had Enough Indy? said...

Two more things. First - I am a proud liberal. What these guys are doing is neither liberal nor conservative. It is short sighted and self-serving.

Second, while the administration has been touting $7.8 million in 'new money' from the gas tax, and pretending that sum would cover this $135-150 million bond, it would not. The Council CFO, Hope Tribble, noted that while the City is getting an additional $7.8 million from the gas tax next year, it must be split between public safety and transportation infrastructure - 10%, 90% respectively. So the 'new money for roads' is really only $6.2 million. They were obviously planning on taking an additional $3.4 million from some other need in our City - every year for 30 years. See, short sighted.

Flogger said...

There must be some disappointed Crony-Capitalists. They must have been salivating over a nice big helping of Pork Barrel Bacon, courtesy of the Crony Mayor.

Sorry boys not today.

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