Of Parking Garages, Dense Development and Jim Brainard’s Ponzi Scheme

Ponzi [pon-zee] noun

A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks.

Have you ever stopped to think about the real reason behind Carmel mayor Jim Brainard’s quest to maximize the Assessed Valuation (AV) and tax revenue potential for each square foot of available land in the city? Both Brainard and his surrogates portray it is a matter of sustainability and stewardship. They also use it as a pretext to claim the reason for the current spate of dense development within the city is making more housing options available for younger and older generations of prospective residents.

The runaway use of tax-increment financing (TIF) and other public subsidies to developers and businesses has created (and continues to create) an ever-growing inventory of residential and commercial projects in which the extra tax revenues realized as a result of increased AV are siphoned off to pay for – you guessed it – more TIF-financed projects. So long as AV rises and property owners can collect more in lease-rental payments from tenants each month than is owed in bond repayment installments, there are no repercussions from this.

What happens if demand for residential and/or commercial square footage softens as a result of an economic downturn or other event? Or, more in the present, demand softens due to an overbuild of residential and commercial square footage? An overbuild so out of control that the city itself has begun listing available commercial and multifamily residential properties on the official Carmel city website. If demand softens to a point where the amount owed in lease-revenue repayments is more than the revenue generated by tenants, how long can the property owner continue to reach into their own pockets to make up the difference? At what point are they unable to make the required monthly bond payments?

As Carmel falls deeper and deeper into debt, more and more revenue needs to be generated by the city itself and its various entities to meet growing debt servicing and repayment obligations. Jim Brainard has a simple solution to this problem: keep building ever-denser projects on as much land as possible, to keep growing the revenue stream. Multimillion-dollar parking garages are built to free up surface land for dense development. At the same time, Brainard and his surrogates reason that “if you build it, they will come”. That is, if enough amenities are built using borrowed money, then people will be attracted to live and work in Carmel, raising the demand – and hence, the AV – of properties throughout the city and the county at large.

Just one problem. What happens when AV flattens out as debt and its serving costs continue to rise? Common sense and history both teach us that the economy is cyclic and no run-up in real estate values continues infinitely. Certainly, many property owners and lenders alike went through the pain of the last “pop” of the housing balloon and recession in 2007-2009. Just over a decade later, another balloon has formed.

Ask yourself. In the absence of much of the current $1.317 billion of debt owed by the City of Carmel, would such frenetic and dense development be necessary? Would it be necessary to the city and the Carmel Redevelopment Commission to spend ever-larger sums of your tax dollars to provide subsidies to hesitant developers and businesses that are now preferring to wait it out and let you and other Carmel taxpayers take on a greater share of their risk?

You decide.