TERRE HAUTE —
State officials are meeting this week to discuss the legal uses of tax increment finance dollars in the wake of complaints and allegations of wrongdoing from Terre Haute.
Charlie Pride, office supervisor for the Indiana State Board of Accounts, which oversees local government finances in the state, told the Tribune-Star on Friday that a meeting is set for early this week, including state legal counsel, to discuss whether tax increment finance (TIF) money can be used to meet immediate city expenses, as some suspect is happening in Terre Haute.
This is the first time the question has been posed, Pride said. Officials are considering the question and “discussions are under way,” he said.
Cliff Lambert, executive director of the Terre Haute Department of Redevelopment, has been outspoken in his concern over the use of the city’s TIF money, traditionally been overseen by the Redevelopment Commission, a body appointed by the mayor and the City Council. Lambert believes Mayor Duke Bennett and Leslie Ellis, city controller, are likely using TIF money to pay immediate city expenses, such as payroll. If so, that’s against the law and threatens the city’s bond rating, Lambert has said.
On April 25, Ellis took control of Redevelopment Commission bank accounts at Bennett’s direction. Since that date, several million dollars have been withdrawn from those accounts. At least $4.9 million had been withdrawn as of June 2, according to the Redevelopment Department.
As an example, on June 2, $1.5 million was withdrawn from a tax-exempt construction bond account for the city’s eastside TIF district, which includes Wal-Mart and other development, Lambert told the Tribune-Star on Friday.
Bennett and Ellis have said the Redevelopment Commission money has been “pooled” with other city cash in a single operating account. As long as Redevelopment funds are not billed for non-Redevelopment expenses, that is perfectly OK, Bennett has said.
(A “fund” is a name for a specific area of spending within the city’s budget, such as a “cemetery fund” or “motor vehicle highway fund.”)
“Pooled cash is nothing unique and is standard fund accounting practice within government units within the state of Indiana,” Ellis stated in a June 4 email to the Tribune-Star. “Many municipalities pool their cash including Redevelopment and TIF Funds.”
Lafayette is one of the cities Ellis cited as also pooling cash in a single account. The city’s controller, Mike Jones, confirmed Friday his city pools Redevelopment Commission money with other city funds in a single bank account. There are advantages to that, such as reconciling only one account, he said. However, Lafayette, in his experience, has not used TIF or Redevelopment money to meet other city expenses.
If you have to borrow money from any city fund to meet an immediate expense, “the only way to do that is to go before the legislative body” for approval, Jones said. Then the funds must be reimbursed before the end of the year. Lafayette has done that with some funds, such as utility funds, but not TIF funds, he said.
Money a moving target
Terre Haute officials have sent mixed signals on whether they are using TIF cash in the operating account for other expenses.
When asked at a May meeting of the Redevelopment Commission why TIF money was withdrawn from commission accounts, Ellis said it was to take advantage of higher interest rates available in other accounts. She later said the money was more importantly transferred to other accounts to “transition” Redevelopment money into the city’s operating account in compliance with a new state law that makes city controllers “treasurers” of Redevelopment Commission money starting July 1.
(Sen. Pete Miller, R-Avon, author of the new state law, told the Tribune-Star on June 4 that the new law did not change how TIF money may be legally used; rather, it was designed only to bring more transparency and accountability to Redevelopment Commissions).
In her June 4 email, Ellis also stated, “Redevelopment Funds are available for expenditure and can only be released for expenditure by approval from the Redevelopment Commission.”
In a telephone interview that day, she said: “We did not expend anything from those funds without the approval of the Redevelopment Commission.” The TIF money has not been spent, Ellis said. “It’s in a bank account with [the Redevelopment Commission’s] name on it.”
Bennett, however, has indicated that TIF money pooled with other cash may be used to meet immediate expenses, as long as all accounts and funds are reconciled later.
“We move money around all the time,” he told Indiana Public Media in late May. “Examples would be you put money in the cash account because you’ve got big payments coming up from somewhere.”
In a May 28 interview with the Tribune-Star, Bennett said he feels the city is on strong legal ground, even if it uses TIF funds temporarily for immediate expenses. As long as those expenses are not charged to a specific fund, such as a Redevelopment fund, it can be done, he said.
In a statement issued to the media and Redevelopment Commissioners, also on May 28, Bennett stated that some Redevelopment “dollars were moved into the city cash account (pooled) just like many other funds are swept in and out all throughout the year. Pooled funds are always available to be spent as needed by any department (including Redevelopment).”
In a June 4 interview with the Tribune-Star, Scott Walker, a financial consultant for the city of Terre Haute, also seemed to indicate Redevelopment money might be used for immediate city expenses. Asked whether the approximately $4.9 million withdrawn from Redevelopment Commission accounts could be returned within 24 hours to those accounts, he said that could not be guaranteed “100 percent.”
“It might take more than one day to do it,” Walker said. “Let me give you a for instance. When you have pooled cash, there are sometimes big expenditures that come through on one day and then in three days you have all the receivables that are $8 million that walk in the door. Well, on that particular day you could not have paid all that money back. But, in two days, you could.”
Under that example, the Redevelopment Commission funds would not be immediately available.
“It fluctuates on a daily basis depending on what you have in investment, what has come in and what hasn’t come in for that day,” Walker said.
‘Robbing Peter to pay Paul’
Unlike Terre Haute and Lafayette, the city of Muncie, which is similar in size to Terre Haute, does not pool its Redevelopment cash with other city funds, said Audrey Jones, city controller, in an interview last week with the Tribune-Star. In general, using TIF funds to pay immediate expenses with the hope of reimbursing TIF accounts later sounds like “robbing Peter to pay Paul,” she said.
Todd Donati, executive director of Muncie’s Redevelopment Commission, agreed.
“We wouldn’t do that,” he said. “We don’t think that’s an appropriate function of the way it should be done. If other cities want to do it, I guess that’s their decision, but we wouldn’t do anything like that.”
Whether it is OK under Indiana law is the question now facing the Indiana State Board of Accounts.
Over the past week or more, the Tribune-Star sought input on that question from several local government finance experts. Some, including Indianapolis-based legal counsel for redevelopment commissions in Terre Haute and Muncie, did not return calls or emails. Gary Malone, a municipal government finance expert with H.J. Umbaugh & Associates, which advises the city of Terre Haute, referred the question to Pride at the SBA. And, Pride, speaking Friday, said the question is currently under discussion.
Reporter Arthur Foulkes can be reached at 812-231-4232 or firstname.lastname@example.org.