Tuesday, August 06, 2013

Fitch Affirms AA Credit Rating For Mass Avenue TIF Bond Issue, Confirms Enormity And Growth Of Downtown TIF District

Fitch announced today that it has assigned a "AA" rating to the nearly $30 million in new bonds being issued by Indianapolis' Local Public Improvement Bond Bank for the redevelopment of the current site of the Indianapolis Fire Department, fire station and firefighters credit union along Mass Avenue. The credit rating agency has also confirmed the "AA" rating for other bonds issued by the bond bank, indicating a stable outlook for the City's finances, notwithstanding the Ballard's dire claims of the city facing a $55 million budget deficit next year. Several comments Fitch makes about the Consolidated Redevelopment Project Allocation Area are worth noting, shining light on the enormity of this TIF district and the negative impact on local government property tax collections it has.
  • "Coverage from tax increment revenues is strong as a result of continued growth in the City of Indianapolis-Marion County's (the city) downtown tax increment district, as well as expansion of the boundaries of the district." (emphasis added)
  • "The district is highly concentrated, with 45% of revenues coming from the top 10 taxpayers."
  • "The allocation area is commercially diverse and includes residential and office buildings, luxury hotels, retail, wholesale and manufacturing facilities. It has benefited from convention business, sports-related development and commercial activity over the last 20 years resulting in a revitalization of downtown Indianapolis."
  • "A significant portion of this revitalization has occurred since the opening in 1995 of the Circle Centre Mall, occupying two city blocks, as well as significant expansion of Eli Lilly's headquarters and the opening of luxury hotels. The most recent development activity includes the construction of a new $450 million JW Marriott Convention Center headquarters hotel which opened in 2011."
  • "Total assessed value (AV) for fiscal 2013 is almost $2 billion, of which base valuation makes up only $38 million or a small 1.9%. AV grew a robust 17% in 2012 and 21% in 2013 as a result of the JW Marriott project coming online, as well as other development in the area."
  • "The top 10 real property taxpayers represented a high 45% of 2013 net real AV in the allocation area. The largest taxpayer is Eli Lilly and Co. (Fitch IDR 'A', Outlook Negative) at 11%. Additionally, tax increment revenues generated from personal property tax, which represent 30% of combined real and personal property estimated tax increment revenues in 2013, are primarily payable by Eli Lilly and JW Marriott."
  • "Additionally, tax increment revenues generated from personal property tax, which represent 30% of combined real and personal property estimated tax increment revenues in 2013, are primarily payable by Eli Lilly and JW Marriott."
  • "The bonds are limited obligations of the bond bank, payable solely from tax increment revenues and funds pledged under the indenture. The bond bank has no taxing power. The bonds are additionally supported by a standard debt service reserve fund, which the city has pledged its moral obligation to replenish."
  • "According to the ordinance governing the city's moral obligation, if revenues are projected to produce a shortfall in debt service requirements and cause a draw on the reserve fund, the chairman of the bond bank will certify the deficiency to the city council within 90 days of such projection, or prior to December 1 of the fiscal year when the deficit is expected to occur, whichever is earlier."
  • "The bond bank covenants that it will take all actions required or permitted to certify any deficiency to the city council within 90 days, regardless of whether the deficiency was anticipated in the annual budget. The council could then choose to appropriate the funds necessary to replenish any deficiencies in the bonds' debt service reserve fund."
  • "The bond bank currently has a TIF Stabilization Fund funded at $10 million and an Appeals Reserve Fund funded at $22.2 million which could be applied towards any outstanding bond bank tax increment supported debt."
  • $16 million in bond debt issued in 1992 will mature in February, 2014.
These fast facts tell so much about the city's current finances. While the city leaders bemoan insufficient revenues due to a poor economy and property tax caps, note that the downtown TIF district's total assessed value grew 17% and 21%, respectively, the past two years. Look at the size of the assessments for this one TIF district--$2 billion! Contrast that to the size of the base (property taxes allocated to local units of government), which is only $38 million, or less than 2% of the allocation area's AV. Although these bonds are not general obligation bonds backed by the full faith and credit of the city and are instead dependent on revenues generated from property taxes collected within the allocation area, the city council has obliged itself to cure any shortfall in repayment of any of the bonds within 90 days. Those shortfalls would have to come from the city's general funds, adversely impacting funding for basic city services. Notice the negative outlook for the largest taxpayer in the district, Eli Lilly.


Anonymous said...

So...the rating is not so great, Ballard's dire claims of the city facing a $55 million budget deficit next year, but we'll have a Cricket Field at $6M, and a new 28 story glass tower condo at MSA with tax money.

"Corruption is as corruption does."

Had Enough Indy? said...

And, one should note, they make NO mention of the $80 million stabilization fund that was created using RebuildIndy money (from the sale of the sewer and water utilities). Thus, one can conclude that these funds CAN INDEED be used for ongoing services, like police and fire, without causing a downgrade by the rating agencies.

Anonymous said...

Long time reader first time comment, Do TIF's play a part in the assessed valuation quotient as determined by the State Budget Agency. The SBA has Indianapolis the growth quotient and 2.6 for cy 2014

Gary R. Welsh said...

I'm not sure what you mean by your question, anon.