The cash-strapped Carmel Redevelopment Commission is revising its 2014 budget to account for the loss of a six-figure income stream critics say it was not entitled to use in the first place.
Rather than set aside revenue from the Legacy development’s tax-increment financing district when construction there stalled, the beleaguered agency applied the annual windfall to the mountain of debt it ran up rebuilding downtown Carmel.
But with a new developer resurrecting Legacy, the money now must be redirected to its intended purpose: paying for infrastructure improvements in and around the project at 146th Street and River Road.
Two City Council leaders say the CRC never should have touched the money, calling the late-year financial scramble further evidence of the panel’s poor internal controls and shoddy recordkeeping.
“The ball got dropped on this the moment they started collecting revenue in 2011,” said outgoing council President Rick Sharp. “A little over $1 million has been misappropriated to this point.”
CRC President Bill Hammer denied any wrongdoing, saying the commission spent the “excess revenue”—about $210,000 in 2011 and nearly $505,000 in 2012, for example—on other redevelopment expenses.
There are plenty of those. Over more than a decade, the CRC borrowed $240 million to support ambitious projects like Carmel City Center and the Arts & Design District, paying the tab with revenue from more than two dozen of the city’s TIF districts.
Its activity slowed this year, after the City Council agreed to refinance $184 million in CRC debt—and gained more control over spending.
Financial hawk Luci Snyder said the oversight is long overdue, given the questionable practices cited in a recent State Board of Accounts audit and the possible misuse of Legacy funds.
“They took the increment and spent it on God knows what,” said Snyder, chairwoman of the council’s finance committee. “Then they denied it ever existed.”
The apparent misstep became evident last month, after new developer Falcon’s Nest LLC resumed construction at Legacy and asked the city to sell $12 million in previously agreed-upon bonds to pay for roads and utility work.
Councilors unanimously OK’d the largely procedural move, but CRC members were surprised by the request and delayed their approval for about a week while they assessed the implications of losing the Legacy TIF revenue.
The Falcon’s Nest request came as a surprise to the panel, Hammer said after the commission’s December meeting.
He said income from the Legacy TIF—about $1.2 million since 2011—was used for other purposes. In October, for example, the CRC transferred $1.5 million to city coffers to help pay for redevelopment operations and expenses.
But in a Nov. 22 email obtained by IBJ, Hammer told Councilor Sue Finkam that the TIF district hadn’t produced any revenue since it was established in 2008. In a note to council President Sharp the next day, he said, “The only amounts generated apparently occurred in 2013.”
On the contrary, an annual report prepared by CRC financial consultant London Witte Group LLC in mid-2013 listed $506,860 in revenue and $522,623 in disbursements from the Legacy TIF in 2012.
Hammer blamed the misunderstanding on confusion resulting from the sudden departures of Executive Director Les Olds and another staffer this fall.
Sharp isn’t sure what to believe.
“Either the people running this thing don’t know the details or they’re deliberately obscuring the facts,” he said. “All kinds of paperwork says what that money is for.”
He and Snyder both referenced a 2008 CRC resolution—signed by Hammer, among others—that established the Legacy economic development area and attendant “allocation area” for the tax revenue the project generated.
The revenue was not earmarked for Legacy because the previous developer went bankrupt before the deal could be finalized, Mayor Jim Brainard said.
“There’s a development agreement in place now that clearly says where the money will go,” he said.
Because Falcon’s Nest backed the bonds and is obligated to repay the debt, TIF revenue will flow through the CRC to the developer. A distribution of about $60,000 was made this month, Hammer said.
Such “stand-alone” TIFs are less common in Carmel these days. Rather than commit all of a district’s proceeds to a single project—particularly one with such limited geographic boundaries—the CRC now reserves some revenue from most TIFs to help pay down debt on projects that benefit the broader community, like City Center.
“We tell developers now, if they’re asking for all of the TIF, ‘Don’t waste your time,’” Sharp said. “We need it. If you look at revenue versus debt service, we’re on the razor’s edge. We need deals to add to the increment so we can back away from the edge.”
The Legacy agreement calls for Falcon’s Nest to spend 40 percent of bond proceeds outside the development. Widening River Road is at the top of the to-do list. TIF revenue should have been accumulating during the project hiatus to help pay for such improvements, Sharp said.
“The big concern here is transparency,” said David Merriman, a professor of public economics at the University of Illinois at Chicago. “Why are they taking from this particular pot of money? … Unless it’s explicitly authorized, it could potentially be seen as a deceptive practice.”
Brainard and Hammer say the Legacy TIF reallocation was an isolated incident resulting from an extraordinary situation.
“It’s very unusual to have a developer go under in the middle of a TIF discussion,” the mayor said.
Councilors have a vested interest in CRC operations, since the city would be on the hook if it defaults on its debt. And Carmel has additional skin in the game: the commission’s annual grant to cover expenses the city inherited in the deal.
Next year’s $127 million city spending plan counts on $500,000 from CRC—down from $2 million when the budget was drafted. With even that smaller contribution now in question, Snyder expects the state to ask for cuts early next year.
“I think we’ll be short. … We will be asked to make cuts, and I think they need to be substantial,” she said.•