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State audit critical of development agency

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Andrew Laker | The Republic 

Parking garage with restaurants The Garage and Bistro 310, Sept. 3, 2010.
Andrew Laker | The Republic Parking garage with restaurants The Garage and Bistro 310, Sept. 3, 2010.

A state audit of the previous administration’s Columbus Redevelopment Commission alleges that it failed to follow statutory processes, circumvented public bidding laws and lacked regular reporting and transparency.

This year’s audit of last year’s commission, conducted by the State Board of Accounts, highlights problems mirrored in a 2011 state audit of the city of Columbus.

Both audits covered dealings during the administration of then-Mayor Fred Armstrong.

“Our attorneys checked with State Board of Accounts, I would think, before they did what they did. These are the same questions that came up before. I can only work with what our attorneys say is legal,” Armstrong said after viewing the audit report. “We have always checked with the State Board of Accounts when there has been a question. Don’t understand why now?”

Current Mayor Kristen Brown, who, during her mayoral campaign, was critical of how the Redevelopment Commission operated, had a more negative take on the state board’s summary report, which was made public in late November.

“The report details an unfortunate disregard for the laws ensuring the public’s money is spent openly and transparently,” Brown said.

Multiple problems cited

Some of the problems stemmed from payments from the Redevelopment Commission to Columbus Downtown Inc., the private, not-for-profit corporation created to acquire property, negotiate deals and sign leases on behalf of the commission.

Granting of tax-increment financing district money from the Redevelopment Commission to CDI contradicted state laws, the report said.

State laws specify for what purposes TIF funds may be used, including “to pay expenses incurred by the redevelopment commission for local public improvements.”

“There is no stated purpose which would allow TIF funds to be granted to a not-for-profit corporation,” the report said.

The report added that entering into a grant agreement with a not-for-profit corporation, such as CDI, so that the not-for-profit corporation can contract for construction work on public structures doesn’t appear to be permitted by Indiana law.

“Had amounts been expended by the redevelopment commission, as allowed within the statutes, rather than granted to and expended by CDI, officials would have been required to follow statutory processes and procedures for the bidding of public works projects,” the report said.

The report said that the commission approved a grant agreement with CDI on June 6, 2011, for $633,000 for construction of the retail spaces in The Commons, to make them ready for tenants. The report noted that a stipulation of the agreement was that the commission would provide periodic reports, no longer than 60 days in interval, of how the money was being spent.

The only mention in 2011 Redevelopment Commission meeting minutes of how that money was spent was noted in the June 6 and Sept. 12 minutes, the report said.

“No evidence was presented of a final report being issued by CDI for the Redevelopment Commission,” the report said.

Redevelopment Commission minutes of June 6, 2011, stated that tenants in the retails spaces in The Commons would pay for their own fixtures and decorations. However, the report said that $9,750 was paid from the city’s economic development income tax fund for logo artwork for Puccini’s Smiling Teeth.

A property swap between the Redevelopment Commission and the Bartholomew County Rural Electric Membership Corp. (REMC) did not follow the proper process under state law, the report said.

The audit of 2011 Redevelopment Commission minutes determined that there had been a sale of airport property in 2010. Deaver Road property owned by the Columbus Board of Aviation Commissioners was transferred in March 2010 to the Columbus Redevelopment Commission, with a promissory note of $367,500.

The note stated that the amount would be paid to the Board of Aviation Commissioners by May 1 this year and be secured by a first lien mortgage.

In May 2010, the Redevelopment Commission gave the Deaver Road property to the REMC in exchange for the REMC’s Second Street property. Both transactions were conducted through CDI.

According to the audit, Indiana law specifies that if the board of aviation commissioners wants to sell land, it must prepare an ordinance for the sale and it must be approved by the “fiscal body of the entity.” In this case, that would be the Columbus City Council.

“There is no indication that the Columbus City Council passed an ordinance authorizing the sale of the land,” the report said.

Also, no first lien mortgage document was presented for the audit, and there was no evidence that a mortgage had been recorded.

The audit found a $367,500 project agreement, dated Dec. 12, 2011, between the Redevelopment Commission and Board of Aviation Commissioners. The agreement was to compensate the Board of Aviation for the sale of the land, the report said.

On Dec. 29, 2011, the Redevelopment Commission gave to CDI $865,000 in TIF funds to repay loans used for downtown redevelopment and acquisition of real estate for future downtown development, the report said.

The following day, CDI paid $365,000 to REMC to pay off the mortgage for the Second Street property, at 801 Second St.

CDI grant opposed

An $865,000 grant given to CDI by the Redevelopment Commission drew scrutiny and opposition from the public at the Dec. 29 meeting, including from then Mayor-elect Brown. She challenged the legality of the transaction.

Current City Council member Jim Lienhoop, who at the time served on the Redevelopment Commission, said at the special meeting that CDI’s obligations stemmed from the purchases of properties along Second Street in 2008, after a Chicago-based developer had expressed interest in developing an indoor sports complex on the site. The properties included the site of the old Bartholomew REMC headquarters.

Al Degner and George Van Horn, the other two commission members who attended the special meeting, also voted in favor of the grant.

Brown questioned how the commission’s approval of the grant fell in line with a city ordinance requiring the City Council to approve Redevelopment Commission expenditures of $500,000 or more.

Commission attorney Terry Coriden said at the meeting that the creation of the obligation, not repayment of the obligation, requires City Council approval.

Brown also told the commission then that she was not convinced the grant was permitted under state statute and asked the board not to approve it because she didn’t want taxpayers to pay for CDI’s liabilities.

Mayor changing practices

Since taking office, Brown has worked steadily to bring all of CDI’s dealings into public view and to shut down CDI.

All that remains to close down CDI now is to transfer one more of The Commons restaurant leases to the commission and resolve the issue of $300,000 promised by CDI and the former Redevelopment Commission to the developer of the downtown Cole apartment complex.

“We stopped doing business this way Jan. 1. We have not used CDI for any new projects, and we have opened its books and have transferred all of its assets and leases with the exception of the lease with Scotty’s (Burger Joint) to the Redevelopment Commission. We are correcting the cited transgressions in an open and transparent manner at the Redevelopment Commission meetings,” Brown said.

“A full financial audit of CDI by Crowe Horwath is expected to be completed later this month,” she added. “We are currently reviewing three proposals to operate the parking garages by professional parking management companies. A very significant effort has gone into dissolving CDI, and we are doing our very best to accomplish that by the end of the year. It is been one of my very highest priorities since the day I assumed office.”

Disagreement with findings

Like Armstrong, Ed Curtin, the former executive director of the Redevelopment Commission, Tom Vujovich, the Redevelopment Commission president from 2005 to June 6, 2011, Coriden and Lienhoop said the commission followed applicable state statutes based on the advice of their attorneys in Columbus and Indianapolis.

Lienhoop added that for several of the transactions, the commission’s attorneys contacted the State Board of Accounts for guidance, and the agency saw nothing wrong with the transactions in those cases.

Vujovich disagreed with the board’s finding that grants to CDI were not in accordance with state law.

“This same issue was raised previously and was based on inaccurate and incomplete information,” Vujovich said.

Under state law, Vujovich said, a redevelopment commission has the power to provide financial assistance (including grants and loans) to neighborhood development corporations to permit them to construct, rehabilitate or repair commercial property within the district.

“We specifically set up CDI to be such a neighborhood development corporation and cited this section of the statute in CDI’s articles of incorporation. CDI’s handling of these grants was strictly for the purposes approved under the statute,” Vujovich said.

Coriden said that he and Bruce Donaldson, of Barnes & Thornburg, reviewed laws about authorizing the release of TIF funds to construct commercial properties within a TIF district and whether the public bidding requirements were applicable to that situation.

Their research indicated that the Redevelopment Commission had the authority to grant the TIF funds and public bidding laws didn’t apply, Coriden said. Additionally, Coriden said, he and Donaldson sought the opinion of Charles Pride at the state board. Discussions with Pride and the board’s in-house counsel

determined that the TIF funds could be granted and that the recipients were not subject to public bidding laws.

Coriden also said that the alleged problem with the property swap is inaccurate because agencies within a municipality can transfer property by and between the agencies, according to state statute.

Curtin disagreed with alleged problems of lack of documentation and transparency.

“Any and all information was available upon request, most information was posted on the website, and the actions of the commission all occurred during publicly held meetings, so all information and actions were transparent,” he said.

Curtin said that, to his knowledge, nobody associated with the Redevelopment Commission for the audit period (Jan. 1 through Dec. 31, 2011) was contacted by the auditor to answer any questions.

Lienhoop suggested that the state board’s conclusions were moot, based on a conversation he had with the auditor who conducted the examination, and added that it’s unlikely anyone will seek further review of the findings.

“She (the auditor) told me that the city and the Redevelopment Commission would be permitted to rebut her conclusions regarding these transactions. I asked her what would happen if that did not change her findings. She looked me squarely in the eyes and said, ‘Nothing,’” Lienhoop said.

Despite the problems the audit alleges and ongoing conflict over downtown improvements, Vujovich and Lienhoop said they are pleased with the Redevelopment Commission’s results.

“I am proud of both the commission’s record of accomplishment and the manner in which it was done,” Vujovich said.

“What we can be certain of is that we have a downtown that adds immensely to our community’s quality of life and helps us continue to attract investment to Columbus,” Lienhoop said. “We should all be thankful for that.”

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