City Council President Rick Sharp says new ordinance may be fresh start for council, CRC
Carmel City Council President Rick Sharp lauded an ordinance last week giving the council oversight over all new debt incurred by the Carmel Redevelopment Commission, calling it the most important accomplishment the council has made since his service began.
But it also could result in an important byproduct, Sharp said: a fresh start for the CRC, in more ways than one.
The council last Tuesday night approved amendments to the ordinance that created the CRC in 1989, adding text requiring the commission to get approval from the council before taking on any new debt. Previously, the CRC only had to seek the council’s OK for municipal bonds, like those issued for the construction of the Palladium, per an opinion on state statutes from the attorney general.
But the approved amendments now require the commission to bring before the council all forms of new debt – such as installment purchase contracts or notes of participation.
The ordinance should reverse a longstanding trend of the appointed members of the CRC taking on debt, much of which is ultimately backed by residential tax dollars, without the approval of elected officials, said Sharp. A recent financial report from the CRC shows the commission has issued nearly $249 million in debt, of which slightly more than $140 million received no council approval.
The council now takes over final say on new redevelopment debt at a time when, according to the same report, the CRC has a revenue-to-debt ratio of 1 – meaning its projected annual income and required annual debt payments are nearly even.
“The facts are the CRC had maxed out its credit through what I think are some missteps in forcing development to continue during the recession, when perhaps the best thing would have been to slow down,” Sharp said.
But Carmel Mayor Jim Brainard said the issue isn’t as simple as that, saying the perceived cash flow issues at the CRC were caused by the commission taking on an unexpected $5.5 million payment to The Center for the Performing Arts to make up for a budget shortfall.
“The redevelopment commission, at the request of the council, made up the shortfall at The Center, which we didn’t expect,” Brainard said. “Only because of that is there some concern about cash flow for the rest of the year. Going forward, there’s going to be a very detailed fiscal plan for both the CRC and The Center, so there should be no issue with cash flow.”
Sharp has said it took years to get from the CRC a financial report like the one presented this year, and he said the council’s ordinance came about after first seeing similar proposals fail multiple times at the state level. But despite any tension or disagreements that may have existed previously between the council and CRC, Sharp said he’s ready to bury the proverbial hatchet.
“There comes a point in time when you have to acknowledge things have changed, and in order to get things done for the people who’ve elected us, you compromise,” Sharp said. “There’s no value in finger-pointing.”
Quick turnaround
Though he said there is a significant amount of information to be pulled together and reviewed, City Council President Rick Sharp said he would be surprised if the Carmel Redevelopment Commission, the city and their consultants do not by June have to the council a proposal on refinancing the CRC’s debt. There’s no time to waste, he said. “There’s a window here in terms of the rate, and no one knows how long that window is going to be open. But you’d hate to think you lost a quarter or half a point for waiting.”
Some of Sharp’s fellow councilors, including Eric Seidensticker and Kevin Rider, said Tuesday communication between the council, CRC and Brainard has recently been better than they have ever experienced. Sharp said Brainard, in a recent council committee meeting, was helping provide the necessary language to make the new amendments as strict as possible. Sharp said he also has been assured the commission’s attorney will not look into ways to circumvent the new restrictions.
“I’m working hard, and I think the council is working hard at communicating better,” Brainard said. “Our system of government is one where there is supposed to be a tug and pull between one branch and another.”
In addition to an apparently rebuilt relationship between the council and CRC, the commission also has before it another opportunity to start fresh. The council, Sharp said, is ready and willing to help the CRC refinance, through municipal bonds, as much of its debt as is eligible.
Not all of it is eligible, though, said Sharp, who added he believes the city already has a small team of consultants working to figure out which of the commission’s obligations can be refinanced. While not all of the debt will be eligible, Sharp said he’s confident as much as $800,000 to $1 million in tax increment finance money can be saved this year by refinancing, which would greatly improve the commission’s debt ratio.
“Unlike a mortgage for a consumer where federal law says you have to be able to pay that loan off at any time without a prepayment penalty, for other types of debt instruments for the business community, those laws don’t apply,” Brainard said. “You have to keep your payments steady, and you only have windows where you can prepay without a penalty.”
Sharp said the city’s credit rating could help land an interest rate of 3.5 percent, or possibly even less than 3 percent, which is several points less than rates being paid by the CRC.
“The spread goes from 5 to 9 percent,” he said, citing the aforementioned financial report. “We can, at a time of historically low interest rates, restructure the CRC’s debt, which will make much more effective use of revenue because we won’t be paying what some might term outrageous interest on these hybrid debt instruments.”
While acknowledging the interest rates on some of the commission’s debt are, “in an ideal world, too high,” Brainard said refinancing debt at higher rates was “always the plan.”
“I don’t think most people expected the recession to be as long as it was,” he said. “At the time, I think CRC was making good decisions based on the fact. The bottom line is we have yet to use any general fund dollars for redevelopment. And there’s no reason to. People got jobs, good jobs, out of the redevelopment, and we’re poised to come out of this recession with a lot of development completed. I’m very proud of the projects the redevelopment commission has accomplished.
“I’m tired of hearing from a few people who say CRC is burdening future generations with debt,” he continued. “The exact opposite is true. In fact, it’s a gift to the next generation. These redevelopment districts are generating around $29 million a year. Those districts will expire during the next 15 to 20 years, and that $29 million will go to the tax rolls. That’s almost as much as all the property tax we’re collecting today. It will allow Carmel to have even lower tax rates than we have today. It is a huge gift to the next generation.”
Despite their differences in the past, Sharp said now that the council has total fiscal oversight over the CRC, it has no plans to stifle future development attempts.
“We’ve solved a problem, and that creates an opportunity,” Sharp said. “Let’s allow them (CRC members) to get back to work redeveloping, instead of wishing they could be redeveloping.”
