Questions about energy center deal linger
Five years after its launch, there are still questions around a building called the “Energy Center” that heats and cools several structures including The Carmel Center for the Performing Arts and city hall.
There is around $16 million in debt associated with building and this was debt that was not voted on by the Carmel City Council. In 2010, the city sold the building and bought it back – with interest – in order to secure the loan.
Carmel Clerk-Treasurer Diana Cordray said she’s tried repeatedly to obtain documents pertaining to the transaction, but she claims she’s had no luck. The Current in Carmel did however receive these documents through a media request that states how the city plans to pay off the Energy Center debt.
Why is this pertinent today? Because the Carmel Redevelopment Commission might pay for a study to look to see if another energy center should be built to service the new $150 million Midtown plan. In addition, many critics, including city council president Rick Sharp, a candidate for mayor, have raised questions about transparency and the long-term debt obligations of the city.
“This is one example of reckless fiscal policies done without transparency,” Sharp said. “I wouldn’t avoid the scrutiny of the fiscal council.”
Carmel Mayor Jim Brainard said he’s been transparent and immediately handed over all documents when they were requested. And he said it’s a great deal that saves the city money.
“In the long term, this is a great deal for Carmel taxpayers,” he said. “District energy centers save taxpayers money and we’ve been more energy efficient and we use that savings to keep our taxes lower and use some of that savings to finance The Palladium.”
Why do we have the Energy Center and what does it do?
When Carmel began construction on The Palladium, it was determined that a heating and air conditioning system wouldn’t be ideal to maintain the acoustics. For that reason, an off-site facility was proposed.
Brainard said the idea gained traction because this separate facility could service city hall, the fire headquarters and police headquarters buildings, all of which needed replacement systems. To replace the systems would have cost $2.7 million for city hall, $1.5 million at the police headquarters and $1.4 million at the fire headquarters, all of which would have had to be bonded out over a 20 to 25 year period.
In addition, Brainard said each building actually saves money because the Energy Center is more efficient. Instead having a heating or air conditioning system kick on or off to provide warm or cool area, the Energy Center is constantly running and rotates between each building to provide services. Estimates by the Mayor’s Office say this could mean 30 percent savings in electrical utility costs.
Sharp said there was no discussion of the other city buildings when this subject was first broached.
“Again, when this project was conceived the only purpose was to serve the concert hall and the construction costs were part of the overall budget for the hall,” Sharp said.
Why sell the Energy Center?
Critics of the Energy Center deal don’t disagree that the Energy Center itself isn’t a bad thing and that it’s smart to save money on energy costs, but they question the way the facility was financed.
The Energy Center was built using money from The Center for the Performing Arts bonds, but that money was needed to finish building, so it needed to be repaid. Instead of issuing another bond, it was decided that the Energy Center – then valued at $7.7 million – for $16.3 million and then bought back for the same price over 25 years with interest.
The city continued to operate the Energy Center through a limited liability company and it received “Energy Consumption Payments” from the buildings who receive services from the center, including City Hall, The Palladium, the police headquarters, fire headquarters, the Booth Tarkington Theater and Office Building One, also known as the James Building. Total receipts from these buildings have totaled $1.6 million from 2011 to 2015.
Attorneys Jennifer Shoup and Ryan Wilmering who worked on the deal said it was a better move to sell the Energy Center because there would have been high costs involved with issuance fees if a bond was used.
City councilor Eric Seidensticker has been critical of the deal because he worries about how it adds to the city’s overall debt.
“When you look at the interest associated with the debt, do you think that’s a good idea?” he asked. “It’s a very expensive way to accomplish a task.”
Brainard disagrees, saying it was the best move at the time.
“It’s not unique financing when you look at other cities around the country, but it’s relatively new to the Midwest,” he said. “The issuance costs are less than a bond issue so we save money there too.”
In addition, by financing the dealt his way, the energy center is paid for by the CRC, which can use tax increment financing instead of having the deal come through the city’s general budget. City councilor Luci Snyder described the deal in 2011 as a “gift from the CRC.”
The energy center deal was finalized before the 2012 debt refinance of the Carmel Redevelopment Commission and the new state law regarding all redevelopment commissions, which essentially put much of the CRC’s spending decisions under the microscope of the Carmel City Council. As a result, this transaction was completed before council approval was necessary.
“The Redevelopment Commission followed the existing state law at the time when this transaction was done,” Brainard said. “At that time, it did not call for city council approval.”
He also pointed out that at the time the city of Carmel got good feedback by those who understood the benefits to the city, such as Ball State University economist Michael Hicks.
How do we pay off the energy center’s debt?
If you look at the budget for the CRC, there’s a line item used to pay off CRC debt and it’s listed as “Energy Consumption Payments.” This is not money based on how much energy is consumed, but this a flat fee charged to each building that uses the energy center services to help pay off the debt for the building.
Since the CRC doesn’t segregate its revenue for paying off of debt, it might appear that the money paid in Energy Consumption Payments is going to pay off other debt, such as construction of The Palladium. But that’s because all of the revenue is put into one account.
The amount raised in energy center payments falls slightly short of the amount needed to pay off of the Energy Center’s debt. That means other revenue of the CRC is needed annually to pay off this balance. Lawyers Shoup and Wilmering confirmed this with Current in Carmel and Sharp echoed that assertion.
“So it currently does not amortize the loan without a supplement,” Sharp said.
There is no rate study and the CRC doesn’t take into account how much energy is consumed by each building when collecting the energy consumption payment, according to CRC lawyers. It’s the same every year.
Seidensticker asserts that the CRC—an entity of the city – is collecting energy center payments from other departments of the city, such as city hall, the police station and fire station, so Seidensticker said it’s the taxpayer footing the bill every year to pay off this debt.
Brainard said those critics are missing the point because the energy center represents a cost savings. If there were no energy center, then each building would pay more money in electrical utility costs and would still have to pay to install their own systems, which would cost millions, so this is an expense that would have had to be paid anyway, but this way it’s a smaller amount.
Sharp asserted that there exists no study numbers to back this up, but the mayor’s office provided detailed estimates to Current in Carmel to defend the savings.
What is the Energy Center?
It’s a centralized structure that provides heating and air conditioning to The Palladium, City Hall, Police Headquarters, Fire Headquarters, Tarkington Theatre and the James Building
Who owns the Energy Center?
The city sold the $7.7 million Energy Center for $16.3 million but immediately bought it back. This was done to create a cash infusion to finish The Palladium and to finance 25-year payments on the debt. CFP Carmel Indiana Energy Center LLC technically owns it, but the CRC will take ownership when the debt is fully paid.
COST SAVINGS FOR THE ENERGY CENTER
Carmel Mayor Jim Brainard provided this analysis his office created to show cost savings. Here’s an example using City Hall.
Without Energy Center:
$57,904 – electrical utility costs
$188,825 – paying off bond to build new HVAC for City Hall
Total: $246,729 annually
With Energy Center:
$39,667 – electrical utility costs
$71,202 – consumption fee paid to energy center (pays off its debt)
Total: $135,860 annually
Savings: $100,869 annually
Source: Carmel Mayor’s Office