By Bridget Levitz, Truth Staff
ELKHART -- It's difficult to hear the word bond and not think about rising taxes. But that's exactly what the city and 400 Block study group have in mind to fund the $13.5 million renovations to the Elco Theatre.
What's proposed is a combination of public and private dollars to cover the tab on the project that would expand the Elco lobby, reduce theater size and turn the former Sorg jewelry store property into banquet and event space.
A combination of a 20-year, $10.5 million general obligation bond, $2 million in private donations and $1 million in grants would fund the project with no anticipated tax increase.
To do this, the city would structure the $10.5 million bond to replace three bonds rolling off city books in the next few years. This is similar to how school levies often are handled, attorney Jack Cittadine said. Cittadine chaired the 400 Block funding committee.
"We worked awfully hard to make sure there was no tax increase," he said.
The city would roll over the 2006 $1.99 million city, the 2005 $1.8 million park and 2006 $1.85 million park general obligation bonds -- to be paid off in 2010, 2009 and 2012, respectively.
City Bond Counsel Randy Rompola of Baker and Daniels likened it to a home equity loan on a mortgage.
"As you pay down your mortgage, you might take out a home equity loan," he said. "You're maintaining your payments, but replacing old debt with new debt."
The 2006 $1.99 million city bond affects the tax rate by 0.0163 per $100 assessed valuation, the 2005 $1.8 million park bond by 0.0250 per $100 assessed valuation and the 2006 $1.85 million park bond by 0.0099 per $100 assessed valuation. According to City Controller Steve Malone, this year's uncertified city tax rate is $1.3830 per $100 of assessed valuation. Elkhart is still waiting on approval from the state.
Using that figure, if the bonds were allowed to fall off, it would lower the tax rate to $1.3318 per $100 assessed valuation.
CPA Todd Samuelson of city financial adviser H.J. Umbaugh & Associates worked on the funding plan with the 400 Block group.
The plan leaves room for other city projects, he said. The city and parks department are considered two different entities -- each able to bond up to 2 percent of Elkhart's $2.274 billion assessed valuation.
Based on Elkhart's 2006 assessed valuation, each entity has a bonding capacity of $15.365 million, he said. Right now, the city has just under $2 million outstanding and the parks department about $3 million outstanding. Elkhart's Redevelopment Commission is the third city entity able to issue debt supported by property taxes.
Other entities such as the sewer or water utilities can issue separate bonds paid back by revenue from the utility. The state-set 2 percent bonding cap applies only to bonds affecting property taxes.
Some may argue that if the current bonds were simply paid off, the city would have that much more available for other projects.
"It's a question of whether the Elco and 400 Block is a priority of the city," Community Affairs Director Wayne Kramer said. "And clearly, it's a priority of a city to resolve this matter. We have to (act) before something catastrophic happens and we have to shut the Elco down."
The city is working with Rompola on necessary paperwork, and Kramer expects the bond request brought to the Elkhart City Council early this summer.
Critics of the plan have expressed concern over seeking a new bond in light of the state's 2 percent circuit breaker law. It could, they say, negatively impact Elkhart's ability to pay back debt.
The circuit breaker puts a cap on how much property owners will pay in taxes, limiting bills to no more than 2 percent of a property's assessed valuation.
"It potentially impacts how much property taxes the city receives," Samuelson said. "As we play that through it could have an impact on what dollars are available for day-to-day operations, debt service or other expenditures."
All of that, however, was taken into consideration when looking at the Elco funding plan.
"We did as much analysis as we could," Samuelson said. "We talked about three years out when the major impact is expected. Everything is based on assumptions."
But in light of changes to circuit breaker legislation last week, Samuelson said Elkhart's impact could be significantly less. The 2 percent cap still applies to home properties, but the Legislature raised the cap to 3 percent on commercial and industrial properties set to come on board in 2010.
According to numbers projected by Legislative Services Agency, an agency that works with the General Assembly to determine impact of new legislation, Elkhart stood to lose $900,000 in property taxes in 2010.
Most of Elkhart's impact, Samuelson said, was in the nonresidential property -- $800,000 of the projected $900,000 was from business property.
"The total impact should come down quite a bit, I think," he said.