Kokomo is pawning its streets
City creates redevelopment authority to use infrastructure as bond collateral
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The City of Kokomo is using its streets and sidewalks as collateral for new bonds. The transaction was approved by the Kokomo Common Council at its meeting on Feb. 27, as was the creation of the Kokomo Redevelopment Authority, which will hold the infrastructure for leasing purposes.
The action isn’t that unusual. It is a tactic used by many municipalities as a way to raise money for development when its normal funding avenues are exhausted. Such is the case with Kokomo, according to Mayor Tyler Moore.
“The bondability of the city is reaching its max,” said Moore. “Because we are reaching the bondability limit the city is able to do for projects out around the battery plants, this redevelopment authority, which is another tool that's used throughout the state, in essence, partners with the redevelopment commission to allow certain assets -- in this case, streets -- to be deeded or assumed by the Redevelopment Authority and then leased back to the commission.”
It may sound confusing, and perhaps with good reason. For years, the city has overseen a redevelopment commission, which gives the city the ability to own and hold real property. It does so mainly for the purpose of economic development.
The commission also is the vehicle used to create and maintain Tax Increment Financing (TIF) districts, where property tax dollars in a designated area are captured and devoted specifically for the district, typically to repay bonds and loans from previous development in the area.
The redevelopment authority, however, is different. It allows the city to issue bonds using its own assets as collateral. In this case, the authority assumed ownership of the streets, sewers, and other infrastructure in the “Industrial Park Consolidated Economic Development Area” under a lease agreement on Feb. 26. The authority will issue $25 million in bonds against that collateral so that the city may build the infrastructure that has been leased.
In effect, the city is pawning streets in order to build them. They even gave the lease agreement a name: “Project Fusion 2.0.”
“It’s a way to basically extend the amount of financing that can be bonded,” said Moore. “We're working with outside counsel and bond counsel on this. They asked if we had ever considered doing it. We were like, ‘What's this again?’”
The city has agreed to pay off the $25 million in bonds over a 25-year period, with semi-annual payments totaling no more than $2.7 million a year. How that money is acquired is an arcane equation that isn’t easily explained, considering the assessed value of the property, the property tax abatement covering most of the leased area, and the existence of other tax-exempt bonds issued in the affected area.
“(City attorney T.J. Rethlake) got a crash course on it,” said Moore. “It's almost like another form of TIF district. You're just selecting a certain area, and that infrastructure is leased back to help fund projects in that same area.”
The council passed both measures unanimously.