The unpaid Tax Increment Financing (TIF) debt owed to General Motors stems from a $40 million bond approved by the Marion City Council for GM in 2009. The bond was bought by GM in a move that was essentially a tax abatement for the company during a time when fears were high that the local plant would close.
GM’s TIF district was created shortly after the corporation filed for Chapter 11 bankruptcy following the 2008 economic crisis. Then Marion Mayor Wayne Seybold said the city offered GM the deal as an incentive for the corporation to keep its plant open in Marion with the notion that the corporation would make further investments in the plant.;
The bond was to help with the cost of implementing new machinery in the Marion stamping plant, which then Marion Plant Manager Paul Buetow said would come from other GM plants in the country and would create a number of new jobs in Marion through transfers of employees from other plants, not new hires. GM has since invested more than $300 million in equipment at the plant. Most of its more than 1,000 employees do not live in Grant County.
Michael Hicks, director of the Center for Business and Economic Research at Ball State University, said the deal sounded like the 25-year tax abatement that Bruce Donaldson of the law firm Barnes & Thornburg had talked about in his Dec. 3, 2015 speech at an Indiana Economic Development Association workshop.
In his speech, Donaldson, who has done work for the City of Marion advising the creation of TIFs, said that he’s seen an increase in frequency of a private company or developer who buy their own bonds from the municipality to be used for a project -- implementing new equipment in GM’s case - and that then, in turn, creating an obligation where the private company - in this case, GM - is owed the future tax increment growth from the TIF district to pay back the bond. Typically, Indiana law only allows local governments to issue tax abatements for 10 years, but this way of issuing a TIF bond essentially allows a local government to issue an abatement of up to 25 years.
“When you think this through, what this really ends up being is sort of a sophisticated tax abatement program because if I’m a company and I’m going to invest $50 million in a project, and I invest $20 million of it through a TIF bond and I get my bond back, then I pay my property taxes and then my property taxes they (municipality) take and pay me back, it’s essentially like an abatement,” Donaldson said in his Dec. speech. “A lot of the times that’s kind of how we sell it to the prospects. We say ‘Hey look, in essence you’re going to just pay your property taxes, and we’re going to give it right back to you through this TIF mechanism.’”
That corresponds with how employees from the Indianapolis-based accounting firm London Witte Group in 2009 likened the 25 year, $40 million TIF deal when they called the deal a “super tax abatement,” and to what Grant County Auditor Roger Bainbridge said when he called the GM TIF “unique” in that GM bought its own bond. Bainbridge and Marion City Controller Julie Flores both said they were under the belief GM’s TIF was tied to the company’s personal property taxes.
London Witte also said in 2009 that because of this TIF mechanism, the city is not on the hook for the $40 million bond, and that would normally be the case, but the apparent mismanagement of TIF increment during the previous administration has now lead to the city owing GM at least a six figure amount.
In the fall of 2013 and in both the spring and fall of 2014, GM returned the tax increment payment the city had sent to GM ‘s trustee, U.S. Bank, citing the fact the corporation believed the amount to be too high, anticipating the city would make a correction and then send back the right amount. But that never happened, Flores said.
On top of that, no TIF payments were ever made to GM in 2015, Flores said. And the payment scheduled to be sent out this past spring of 2016 has also not been sent because the amount sent over to the city by the auditor’s office earlier this year was roughly double what Umbaugh calculated it should have been, Flores said.
If it is known, who or what is at fault for the miscalculations has not been publicly identified, though Bainbridge said the whole situation doesn’t make him confident London Witte did their job correctly.
Another question the whole ordeal brings up is where the money GM sent back was spent. That, too, has yet to be answered. City officials say Umbaugh has not been able to locate the money or where exactly it has been spent. A message left for former Mayor Seybold was not returned.
Mismanagement of TIF funds is not something new to Marion. The Seybold administration was dinged by the State Board of Accounts in the state entity’s 2013 audit of the city.
The audit, filed on Aug. 1, 2014, shows that the City of Marion disbursed $47,111 from the TIF Allocation Fund for “professional fees incurred in the issuance of 2013 tax anticipation warrants.” The State warned the city that these disbursements should have been made from the General Fund, or “allocated among the various funds that received tax anticipation warrant proceeds.”
Along with the $47,111 spent on tax anticipation warrants, the city also charged $14,111 to the TIF Allocation Fund for “prescription drug expenses.” The state again warned the city that these charges should have been made to the Health Insurance Reserve Fund. According to the audit, the State was able to show that at the end of 2013 the Insurance Reserve Fund was overdrawn by $2,017,671. The city was then told by the State that “sources and uses of funds should be limited to those authorized by the enabling statute, ordinance, resolution, or grant agreement.”
At the time the results of the 2013 audit were reported by the Chronicle-Tribune - July of 2015 - then Mayor Seybold declined to comment.
The city is in reported negotiations with GM to pay back money it owes as Umbaugh continues to go through other TIF projects and how the money was used. For the time being, Umbaugh is not commenting on what they have found.