Carmel, Indiana: Betting Big on Bonds and Managing Debt
Carmel, Indiana is a city north of Indianapolis that is home to an impressive performing arts center and maybe best-known as “land of the traffic roundabouts.” Carmel Mayor Jim Brainard is relying heavily on city bonds and betting that by going deeper in debt that the city will come out ahead in the end. Bonds have paved the way for major improvements already, so what is next for this city near the state capitol – or are they extending too far?
Carmel has already racked up debt that totals over a billion dollars – between interest, principal, and payments. For an in-depth look at Carmel's debt and borrowing plan, check out the piece in the IBJ These bonds have paid for a variety of city-wide improvements: from major road upgrades, to water and waste-water work, as well as the construction of the city's impressive performing arts facility - the Palladium. There are 48 existing bonds for the city, of which the aforementioned are only several.
Carmel has been strategic about repayment of their bonds as well. Carmel has a lower or similar property tax rate compared to neighbors and the city has not jacked taxes sky-high to try and meet its financial obligations. Rather than consistently raising taxes (and risking the ire of residents), Carmel has found other ways to pay the bonds. Some of the bonds are paid for by the utilities department that has its own budget, for example. Still other bonds are covered by tax increment funding (TIF) districts' revenue as well as other taxes if revenue doesn't meet demands. Property owners alone don't shoulder the burden for the existing bonds, allowing residents to enjoy the improvements without footing the bill through property taxes.
Now the city is looking to add to the upgrades...and the city's existing and impressive amount of debt. Carmel is planning on adding over $100 million in bonds for projects like more roundabouts, further infrastructure improvement, an antique carousel, and the mayor's pet project: a $38 million dollar 5-star hotel. The mayor's vision is simple: by investing millions in the city, people will want to live there, and companies will be motivated to headquarter their businesses there, which will then help pay off the investment with corporate taxes. As necessary as waste-water projects may be, they don't have the same appeal as a luxury hotel in downtown Carmel. The mayor's upscale hotel is no fly-by-night plan: he's been trying to engage a major hotel group in Carmel's City Center for two decades!
The city council has to approve the latest bond venture; although will they be more likely with the recent Standard&Poor's rating? According to the IBJ, Carmel received an AA+ from S&P which is only one step below the coveted AAA rating. While it's true that Carmel is in debt, they are able to meet their obligations. Looking at neighboring Indiana suburbs, although Carmel's debt stands out, so does its wealth. Carmel isn't just a wealthy city, it's a growing city with a healthy tax base. It's that element of growth that Mayor Brainard is taking all the way to the bank...or the bond, as it were. The city of Carmel hopes that by doubling down on its use of bonds for city improvements that they'll drive growth – in turn creating the means to pay for this grand vision.