Greenwood residents want answers as to why the city is one step closer to allowing a luxury apartment developer to essentially not pay taxes for nine years in order to improve its profit margin and keep rents competitive.
The Greenwood City Council on Monday voted 7-1 to approve a unique incentive — dubbed a "super abatement" by economists — for a developer that is headquartered in the city. Council member Bruce Armstrong voted against it.
The Garrett Co. is building a 180-unit, high-end apartment complex, recently dubbed VERGE Luxury Flats, on 6 acres across the street from its headquarters on Greenwood Springs Boulevard, on the city’s north side.
The city’s redevelopment commission unanimously approved the incentive, and now, because the tax break is valued at more than $1 million, the city council must decide whether to approve it. A final vote is expected at the council’s next meeting June 17.
Here’s how it works: The company has realized that it can charge higher rents in other states and asked the city to make up the difference in its revenue — about $1.24 million — so that the company can charge comparable local market rates on the new complex in Greenwood. The company has the cash it needs to build the project, so for the next nine years, the city will return most of the company’s property tax payment to it, basically paying an incentive over the course of several years rather than a one-time cash handout.
So the company will get its own property tax payment back until the city has repaid the company its $1.24 million investment, plus interest, to total $1.72 million.
Although the city claims there is no risk to the taxpayers, and they are not handing over any money to the developer, residents are asking why the city is willing to allow this big of a tax break for a residential development.
"(They are), by far, the fastest growing business in Indiana … yet they need a cash advancement to build here," said Dale Marmaduke, who ran an unsuccessful campaign for mayor against Mayor Mark Myers in the May primary. "That, to me, sounds like an over-leveraged company that needs money, and I am scared of that.
I ask that you not give city money for something like this," he said.
Jay Hart, who recently ran unsuccessfully for a spot on the city council, said the city needs to better prioritize its needs, and work harder to produce more tax revenue rather than giving it away.
"It seems that the project has already started. I was over there yesterday and there is already drainage in the ground," Hart said. "I am trying to figure out why we are, after the fact, investing our money in a company that started a ($24 million) project knowing they were going to have this deficit in the margin, and why the people of Greenwood are responsible for that," Hart said.
"Why are we investing in a private business? We didn’t elect an investment firm. We elected you to be sensible, conservative people, to handle our money wisely," he continued.
He accused city officials of being financial acrobats, and argued that when the TIFs were introduced, the first priority was supposed to be fixing the city’s streets and sidewalks and improving its infrastructure. Parks improvements and economic development would come second. But his neighborhood’s infrastructure is still a mess, he said.
"What are we doing as a city to combat that law that says we can’t use this financing to fix my streets? Are we challenging the state on that? Are we challenging the state on the things that we need in my neighborhood, in District 1, or only on the pet projects that everybody in the administration and some of you up there seem to want? What are we doing? We need these things and we can’t wait another 25 years. That’s not a plan," Hart said.
Legal and financial consultants hired by Greenwood to draft this deal, as well as some council members, hammered the idea that there is no risk to the city, and that the city is not handing over any money for the project. The developer is purchasing the bond. The developer will only get back the amount of taxes its development generates.
"What the developer is looking to do is get a future cash stream to help offset some of the market differences they’re experiencing in the level of apartments that they want to construct in the city and the amount of rental income that they can ask for those apartments," said Jennifer Hudson, a financial adviser the city hired to work on this project.
"They only get their taxes rebated back to them, nothing else," she added. "It gives them a future cash flow benefit for their investment in the community."
Council member Ron Bates asked for examples of similar developer-backed bonds used in other areas. Indianapolis, Kokomo and Evansville have made similar deals with developers, consultants said.
Armstrong asked if the projects in Evansville were residential or commercial.
Commercial, they said. The city provided similar incentives to help local businesses expand and grow their footprints in Evansville.
In the end, the city council was supportive of the deal and project, complimenting the location and style. If they vote similarly at the next council meeting, the incentive passes.
"All the city is doing is foregoing some tax revenue we wouldn’t be getting anyway if this apartment complex wasn’t going in," said Sam Hodson, a local attorney who represents the city.