Tuesday, December 14, 2010

Are TIFs Now Being Used To Finance Nursing Homes?

A number of us have questioned a decision by Mayor Greg Ballard's administration to pledge TIF revenues from a downtown TIF district to finance construction of a hotel and mixed used development on the southern edge of the downtown known as North of South. Pat Andrews did a great job summarizing the financing for that deal:

Briefly, the deal is this: the City will float a bond up to $98 million, loan the No-So developer up to $86 million, pay the first three years of interest only payments from the proceeds of the bond, put in $9 million of infrastructure, pay Eli Lilly $14 million from an old loan on the Harding Street TIF (which Lilly will give to the developer), turn over its $5 million in proceeds from the area being designated a 'Certified Technology Park' to the developer, and help the developer pay the loan back by applying 100% of all property taxes collected in the area for 10 years. This is the project that was rejected by all financial institution(s) approached by the developer. The City would get a first mortgage on the development, but Eli Lilly would retain ownership of the land - so if there is a default by the developer, the City would become owner of partially completed buildings and have to pay the bonds off from property taxes collected elsewhere in the consolidated downtown TIF.

It looks like the use of TIFs is the newest thing for obtaining creative financing of development projects for political insiders. Some people up in Marion are raising serious concerns about a plan there to finance the construction of a new nursing home that is being built by MainStreet Capital, a business owned by State Rep. Eric Turner's son, Zeke Turner. Eric Walts, whose family operated nursing homes for 25 years, is one of the residents raising concerns about a plan to float a $13 million bond issue utilizing a Marion TIF district as a loan guarantor for a new nursing home planned by the Turners. Walts explained in a letter to the editor of the Chronicle Tribune this past week what the deal means to taxpayers:

Do you remember the story of the Emperor who had no clothes? In this children’s tale, everyone knew the emperor looked ridiculous wearing next to nothing, yet those in the royal court were afraid to speak up for fear of hurting the Emperor’s feelings. I guess I am in the unfortunate position of the child in the story who exposed the follies of the royal court and Emperor, or in this case the very dangerous shift in economic development policy that Marion city officials are pursuing.

Although the allure of a new $13 million investment may appear beneficial, taxpayers of Marion be forewarned, you are officially on the hook if the Emily Flinn Nursing Home built by MainStreet Capital defaults. The city of Marion is going to enter into a complicated financial transaction that will result in millions of dollars of taxpayer liability if this project were to fail and the developer or operator or one of their subsidiaries were to default on their TIF debt obligation. This is a very dangerous shift in economic development strategy that should be avoided at all costs.

The city of Marion, specifically the Marion Redevelopment Commission, is going to loan Main Street Capital millions of dollars without ever analyzing whether or not Main Street Capital can repay the debt. Unlike Walmart, Dollar General or General Motors, MainStreet Capital has never had to publicly disclose a balance sheet or provide any other financial data that could be independently scrutinized. How do we know if this company can repay the debt, or their parent company, or one of their subsidiaries?

So here are some facts about this deal:

1. The proposed Flinn Nursing Home is a speculative entrepreneurial venture, and unfortunately in this country, more than half of all new businesses fail.

2. There have been no independent market studies analyzing the need for a new nursing home in the Grant County market.

3. The city council is on the verge of approving Taxable Increment Financing that will require the taxpayers to repay the TIF bonds if the project fails and the Mainstreet developer or his subsidiaries default or fail bankruptcy.

4. There is no personal guarantee or surety bond being required of any of the individual partners of MainStreet Capital to guarantee the TIF bonds. There is not sufficient collateral required to be put up by the developer if, in the worst case scenario, this deal goes bad.

5. If the project fails and the business is sold by the bank at a value for less than the original construction cost, we the taxpayers could be on the hook to fund the outstanding TIF bond liability.

Are you, the taxpayer, prepared to start guaranteeing the debt of private developers? Do you want your payroll and local income taxes used to fund failed businesses? That is what the city administration and council are asking the taxpayers to do. They want to use your hard-earned money that is deducted from your paychecks to guarantee the debt of a private businesses. If you were ever upset at a tax abatement, then you should be outraged that your taxes are being used to guarantee this development.

I for one am willing to stand up and exercise my constitutional rights to say “No!” The City of Marion should not be able to use my taxes or your taxes to pay for the failed mistakes of private businesses. Our taxes should pay for government services such as schools, and fire protection, for police, libraries and roads. Our taxes should not be used to guarantee any private business owner’s debt, whether that business is a nursing home, a manufacturer, a distributor, a retailer or any other business.

I encourage you to contact your city council person and urge them not to support this TIF transaction or any other that uses taxpayer dollars to guarantee the debt of a private developer.

Eric Walts owns and operates Suite Living, 1256 N. 400W, Marion.
I have to wonder if the same attorneys advising the City of Indianapolis on the North of South deal are providing advice to the folks up in Marion after reading Walts' explanation of what is being proposed there. I've generally not seen economic development leaders tout nursing homes as an economic development project until this project. This is not the first taxpayer-funded project involving Rep. Turner and his son that has drawn criticism. The Fort Wayne Journal-Gazette had a story earlier this year questioning Rep. Turner's role in landing a building lease for a call center operated by ACS in Marion on behalf of FSSA as part of the Daniels' administration's controversial privatization of welfare services.


Had Enough Indy? said...

It would serve the public interest if the Legislature would step up and create limits on the uses of TIF revenues, AND, insist that the original bonds be paid off as soon as possible and before any excess revenue is applied to other projects.

It is nonsense and folly to turn local governments into lending institutions.

Unknown said...

Mr. Walts shouldn't worry because Rep. Turner voted to increase nursing home payments in Feb. 2011. I'm sure he's just looking out for taxpayers and it's just a coincidence that his son's company is the developer.