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Investor rates bond for Palladium among nation's best

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Carmel Mayor James Brainard's opponents in a three-way mayoral election race have questioned the city's growing debt, but the $80 million bond that started it all gets plenty of love from the investing community.

Municipal bond manager Josh Gonze of Thornburg Investment Management in Santa Fe, N.M., picked the bond on Carmel's Palladium concert hall as one of the six best in the nation. His picks are featured in this month's issue of Kiplinger's Personal Finance as part of an article on the pros and cons of muni-bond investing. "Gonze does not believe any muni bond is totally safe, but he thinks that these high-quality bonds are relatively secure," the magazine noted.

Gonze, whom Kiplinger's characterized as a "bullish" bond manager, could not be reached for comment on what factors played into his picks. Moody's Investors Service Inc. rates the 2005 bond on Carmel's main performing arts hall as Aa1, which is its second-highest rating. The zero-coupon bond matures on Feb. 1, 2021 and has a 4.7-percent yield.

Gonze's other top picks were issued by the California Public Works Board for the University of California; Montgomery, Ala., Waterworks and Sanitation; Oklahoma Municipal Power Authority; Rio Rancho, N.M. School District; and the Tampa Bay water utility in Florida.

Carmel and its redevelopment commission have about $447 million in debt between them. The $80 million bond will be paid from commercial property taxes collected in a tax-increment financing district that covers downtown and much of U.S. 31. It's backed by the city's entire property tax base.

Brainard thinks the bond for the concert hall, now part of a $175 million complex, gets a fairly high rating because it's senior to the other debt, and because the TIF district has grown since 2005. At that time, the city projected revenue for this year of $7 million, but it's actually around $17.6 million, he said. "It's huge," he said. "The TIF district has grown that much."

Marnin Spigelman, one of Brainard's two Republican opponents in the May 3 primary, often points out that with projected interest, the city is facing nearly $1billion in debt. (The other Republican candidate is city council member John Accetturo.)

One reason revenue in the TIF district has grown so much is that its boundaries have expanded, Spigelman said. Considering the city's recent budget deficits, he said, "It's questionable as to what the actual credibility of Carmel's ability to borrow is right now."

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  • Questions
    I do not fully understand TIF financing, so maybe someone can help me here. If the new taxes generated by the development are all earmarked to service the debt, who pays for the increased fire and police protection in the newly developed areas? Who pays for snow removal and street cleaning? And I think the biggest question out there is, who covers the operating deficit of the project?

    Sure, right now everything's rosy. It's kind of like refinancing a house. Just roll all the costs into the new mortgage, skip next month's payment, and you have plenty of free cash flow in the short term. However, eventually you need to service the mortgage while still covering operations.
  • Investment
    I am not sure why many wish the successful to fail but it is evident that Carmel is on the right road by investing in their future

    Even in the present economy, TIF income surpasses and supports all bonding that the city has on the books without having to build a single stick of new construction in the next 5 years or longer.
  • Payment not the question
    UMMMMM....There has never been a question as to whether or not the debt will be paid. That is what gives a high bond rating...the probability that the debt will be paid back, not the merit of the project. The question is whether or not it was good policy to issue the debt and whether or not taxes will be raised down the road to pay for the half a billion in debt.

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  1. The $104K to CRC would go toward debts service on $486M of existing debt they already have from other things outside this project. Keystone buys the bonds for 3.8M from CRC, and CRC in turn pays for the parking and site work, and some time later CRC buys them back (with interest) from the projected annual property tax revenue from the entire TIF district (est. $415K / yr. from just this property, plus more from all the other property in the TIF district), which in theory would be about a 10-year term, give-or-take. CRC is basically betting on the future, that property values will increase, driving up the tax revenue to the limit of the annual increase cap on commercial property (I think that's 3%). It should be noted that Keystone can't print money (unlike the Federal Treasury) so commercial property tax can only come from consumers, in this case the apartment renters and consumers of the goods and services offered by the ground floor retailers, and employees in the form of lower non-mandatory compensation items, such as bonuses, benefits, 401K match, etc.

  2. $3B would hurt Lilly's bottom line if there were no insurance or Indemnity Agreement, but there is no way that large an award will be upheld on appeal. What's surprising is that the trial judge refused to reduce it. She must have thought there was evidence of a flagrant, unconscionable coverup and wanted to send a message.

  3. As a self-employed individual, I always saw outrageous price increases every year in a health insurance plan with preexisting condition costs -- something most employed groups never had to worry about. With spouse, I saw ALL Indiana "free market answer" plans' premiums raise 25%-45% each year.

  4. It's not who you chose to build it's how they build it. Architects and engineers decide how and what to use to build. builders just do the work. Architects & engineers still think the tarp over the escalators out at airport will hold for third time when it snows, ice storms.

  5. http://www.abcactionnews.com/news/duke-energy-customers-angry-about-money-for-nothing

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