It gets pretty complicated, but we'll take a stab at it. "It" being the financial twists and turns of the downtown mall financing which are the subject of an extensive article in the Indianapolis Business Journal (IBJ) of 2/16/09.
At least part of the land purchase, and the construction of the buildings, was financed by a tax-exempt bond issue, said bond issue to be redeemed by property taxes through a Tax Increment Financing (TIF) district. The real estate is owned by the city. The improvements, we understand, are owned by the Circle Centre Development Company (CCDC), a private group which contributed to the original financing of the mall.
Since the property tax is paying for the land and buildings, and the current lease requires no rental payment for the land, we figured this must be a pretty good deal for the CCDC. At least it seemed worthy of a second look.
A very cordial conversation with a gentleman from the Indianapolis Bond Bank enlightened us as to some of the details. (We think we understood it!)
The IBJ said, in part, "After collecting about $15 million during the first few years of the lease, the city had to stop accepting lease revenue so it could preserve the tax-exempt status of its bonds." We believe this decision was made in January, 1994.
Apparently IRS rules provide that private contribution to the debt payment makes the bonds taxable and therefore subject to higher interest rates. That a separate lease of the land, specifically for that purpose, must be considered a part of the debt payment scheme which includes distinctly dedicated property tax funds seems unreasonable to us. But we suppose that is an issue to be taken up with the feds.
What we do not understand is why this red flag did not go up immediately when the CCDC entered the equation with its initial investment.
It is fair to point out that participants in the CCDC include two banks, two insurance companies and two public utility companies. We hope you'll pardon our touch of cynicism if we wonder whether some of the legal eagles involved with these organizations did not in fact count on the IRS to pull this chain, thereby negating any lease contract.
As it stands, by whatever reasoning, the City of Indianapolis owns some of the most valuable land in the entire State of Indiana, which land is occupied and used by private, for-profit corporations, and from which land there are no revenues for general municipal usage. Is there something wrong with this picture?
Almost as an aside, the same article includes this paragraph. "The city does continue to receive revenue from Circle Centre's World Wonders parking garage, but that income is diverted toward paying the city's $25 million contribution to the $100 million Conrad Indianapolis hotel." (Our emphasis)
Our memory is not quite what it used to be, but surely we remember being told that deal was an "investment" rather than a "gift!"
There is so much smoke and so many mirrors in downtown financial arrangements, it's a wonder the criss-crossing checks don't get completely lost. Then again, maybe that's a big part of the problem!