City of Kokomo working out the numbers

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November 22, 2009

Bad news adds to budget crunch

By Scott Smith The Kokomo Tribune Sun Nov 22, 2009, 11:06 PM EST

The elephant in the room isn’t going away, as much as Kokomo city officials wish it would.

It’s been more than six months since local officials learned the “new” Chrysler wasn’t going to pay property taxes owed by the bankrupt “old” Chrysler, and there’s still no resolution in sight.

Local officials must decide by February how much to borrow if Chrysler doesn’t pay.

And they’ll have to decide whether they’ll accept loan terms dictated by the state of Indiana.

Friday, city controller Jim Brannon said state officials expect to meet next week to clarify the loan terms.

But hopes this summer of getting state loans at zero percent or 1 percent interest appear to be fading.

Brannon said a Thursday conversation with state budget director Chris Ruhl was non-productive.

“We didn’t like what we heard, so we’re still working on it,” Brannon said. “They were saying in excess of 3 [percent]. That just doesn’t work for us.”

Since there’s been no discussion whatsoever of the loans not being repaid, the interest rate becomes crucial to Howard County taxpayers.

For instance, city council members and Kokomo Mayor Greg Goodnight have discussed borrowing just half of the city’s portion of the Chrysler shortfall — about $5.9 million.

Paid back at 4 percent interest — the low end of a market rate — over 10 years, Kokomo taxpayers would pay an additional $1.27 million in financing.

That equates to a sizable, long-term property tax increase for Kokomo homeowners.

Four months of talks between state and local officials apparently haven’t resolved the interest rate issue.

The discussion heated up this summer, when Goodnight first told council members locals might have to pay interest.

Until then, it was almost assumed the state would allow zero percent loans, as it had when Delphi failed to pay its 2005 property taxes.

In late July, Goodnight said state officials had used the term “up to market rate” in conversations about the loan rate.

Shortly thereafter, it appeared state officials would back off that demand.

This week, however, Brannon said Ruhl expressed concerns about the state’s bottom line when the subject of loan terms was discussed.

Since that revelation, there have been numerous behind-the-scenes conversations about the interest issue, which remains unresolved.

“He just told us how bad the state is,” Brannon said.

Ultimately, the decision on loan terms rests with the three-member state Board of Finance, which consists of State Treasurer Richard Mourdock, State Auditor Tim Berry and Ruhl.

The decision of the Board of Finance is further subject to review by the State Budget Committee. The budget committee is made up of Ruhl plus four state legislators — one from each of the four legislative caucuses.

Brannon said Ruhl plans to meet with committee members to discuss the issue.

What is certain, however, is that state officials have the option to press for repayment with interest.

That wasn’t the case in 2008, when Kokomo borrowed $2.4 million and Howard County borrowed about $900,000 to make up for property taxes Delphi didn’t pay in 2006.

Legislation authorizing those state loans specifically prohibited the state Board of Finance from charging interest.

But state legislators either chose or failed to include the same language in the 2009 legislation authorizing the Chrysler loans.

• Scott Smith is a Kokomo Tribune staff writer. He may be reached at 765-454-8569 or via e-mail at scott.smith@kokomotribune.com

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