Yet Another Eco-Devo Scandal

December 19, 2018

by David Penticuff

It was a nice phrase used in William Makepeace Thackeray’s 19th century novel “Vanity Fair,” in which he wrote of a “perfect storm of sympathy.”

Pardon us if we rework the now well-worn expression. The confluence of power in my Indiana county of a former mayor and his brother, plus the county’s Economic Growth Council executive director and a cadre of lickspittles, selfish careerists, often weak-minded and corrupt cronies, mixed with the rise of Tax Increment Financing (TIF) to create a perfect storm of financial malfeasance that haunts us to this moment.

This past weekend, an ex-mayor’s brother, also the former project manager for our Old Y building and currently a defendant in a lawsuit that accuses him of fraud, spoke on the record by email through his attorney.

The project never came to be but was funded through TIF and it appears the only money spent came from bonds to be paid back by tax increment financing. It’s called “tax increment” because the incremental increase in taxes from an increase in the value of the properties in a TIF district are supposed to pay back the bonds. The base amount of taxes are supposed to continue to flow to local schools, city services and the other normal expenditures by local government.

This, at any rate, is how economic development folks explain TIF, which in its ideal state is supposed to supply essentially new tax dollars to feed economic growth. It is supposed to divert growing tax revenue to pay for more growth.

But it doesn’t work that way, especially in places like my county, where growth has been a true challenge.

Regardless, the email’s contention seems to be that things are working okay with his project, even as the building falls in to disrepair with an unpaid $142,000 property-tax bill and TIF bond debt, from a refinance of the original TIF bond that let his late boss, a developer, off the hook for paying back his public money.

“When the bonds were refinanced in 2011 with other bonds it is the accumulation of the taxes from the TIF district and the projects involved in the 2011 refinance that is repaying the bond,” he wrote in the email.

So, everything is cool. Well, no it’s not:

• The $2.5 million borrowed through a TIF bond issue by the well-connected developer did not result in anything like $2.5 million in work at the Old Y, according to city officials.
• The 2011 bond issue, which occurred after work has stopped, forgave the developer the debt and passed it onto taxpayers, who actually do pay TIF bonds back with their money.
• The statement that the TIF district is paying off the bonds is wrong. In fact, the dying community revitalization enhancement district is making the payments on the 2011 TIF debt. It seems that the base valuation amount that is supposed to keep revenue flowing to the city and schools has been zeroed out in some districts, something no one takes credit for doing. But redevelopment commissions, like that in my county, have the authority to change the base value of property in a TIF district. If the Redevelopment Commission set the values accurately to keep paying for local government, it would cut into the amount that my city has to pay to keep its TIF debt current. CReED goes away in 2019.
• The city is hoping to get enough out of it to finish off the 2011 bond. CReED uses sales tax. Making bond payments for the city was never its mission.
• The developer, who hired the mayor’s brother, was not the only one released from his financial obligation by the 2011 TIF bond. Four other companies received loan proceeds from the city and were later released — by city officials who simultaneously refinanced all five loans exclusively with public money, bond documents show. In addition to the developer’s consulting firm, Global Investment Consulting, the companies Western Place, Active Properties, JSG Processing and Winterfield Realty all received loan proceeds from the city and were later released via the same refinancing transaction.
• Western Place and Active Properties were run by the ex-mayor’s business partner. He and the mayor were the sole principals in a portable ice rink company called Ice Rinks 2 Go, which they incorporated in May 2008, according to state corporation records.
• Many of the financial records related to spending at the Old Y project were never found or created. Invoices that were found had totals include $729,801.18 for “rough carpentry,” $95,000 for an “elevator,” $249,941 for “HVAC,” $212,754 for “electrical” work, among a handful of other construction work, including swimming pool repair, asbestos removal, roofing work and plumbing. No elevator actually exists at the building, according to the city.
• According to the city’s lawsuit, part of the millions in public money provided to the developer for renovation of the Old YMCA was used for political donations to the former mayor as payments to his relatives and for other personal expenses, according to an amended complaint filed by the city..
• There was an FBI investigation into the Old Y going back to 2014. No arrests resulted but our county prosecutor says that, based on his review conducted this year, the possibility for criminal charges existed in the Old Y project. However, without further investigation, it appears that the statue of limitation has expired for the crimes suggested by the evidence he reviewed.

Clearly, this is an ongoing scandal, much of it spun by TIF, which lacks adequate safeguards in Indiana to prevent its abuse. Other Indiana cities also suffer.

Folks, there just is no free money — unless of course you are a college graduate wanting $5,000 from my county through its Growth Council. Grant for Grads makes a gift of $5,000 for the housing of college graduates if they agree to live in the county. It is not needs-tested. It doesn’t require the recipients to do anything but live in the county where they work, which we think most would do anyway.

We are not wealthy enough for such programs, especially if if everyone entitled takes advantage of it. But don’t look to our Growth Council for fiscal sobriety. Back in 2013, its director said he could not speak to the downside of TIF as he had never been a part of a TIF that didn’t work out well. That was two years after the TIF Old Y refinance and a year after the Gas City Redevelopment Commission approved a $1 million TIF loan for Echelon, the furniture maker that left our county without paying its workers. Its chief financial officer was sentenced to prison for bank fraud and wire fraud.

This week, despite all, the Growth Council was schedule to return to county council to ask for more money in the name of economic development. My newspaper is earnestly asking council members to finally just say “no.”

David Penticuff, an adjunct scholar of the Indiana Policy Review Foundation, is editor of the Marion Chronicle-Tribune, in which a version of this essay was published on Dec. 19, 2018.

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