Statement from Mayor Moore's news conference

7/29/2019 Statement from Mayor Moore's news conference

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574.294.5471

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City ofElkhart, IndianaThe Honorable Office of the Mayor

the at)' with aheartDick Moore 229 S. Second St

Mayor = ..... :=Eu=- : : Elkhart, Indiana

March 22, 2013

This morning I met with the final group to complete my study on the Compact issue.

began by meeting with one of the authors of the Compact Agreement and had very interesting

discussion and was educational. I advanced my education by reading the letters and memos put

forth,by Mayor Perron in 1998. I then called in so'me of my supporters, a group of businessmen

and told them of the cities past and current position on the Compact. This morning I

entertained a group of outside the city property owners who are concerned about what theysee as a negative impact upon their business relative to implementation of the Compact. I

talked of the history of the Compact and addressed what I had heard as their questions during

the Council meetings and listened again to their concerns.

It was as expected a financial concern. Hearing nothing new, I proceeded to announce

this Press Conference.

The History, Benefits, Challenges, and Solutions Culminating in the Elkhart Compact Agreement

Over the last 30 years, the federal, state and local governments as well as insurance

companies and financial institutions have urged communities to master plan community

growth using land-use plans and utility master plans. They have also collectively encouraged

communities to require municipal sewer and water fo r medium/high density housing,

commercial/retail projects, and industrial development for environmental purposes.

In the 1990's, the State of Indiana passed legislation making the annexation of property

contiguous to the city boundaries very difficult. Since that time annexation rarely occurs and

when it does, it is usually either vacant land or property that is in need of city water and sewer

due to the failure of well and/or septic.'.

Prior to 1998, the City of Elkhart in order to promote business growth, job creation and

community progress allowed property owners outside the Elkhart city limits to connect to city

sewe'r and water. In exchange, property owners would agree to and be required to pay three

times the sewer rate that Elkhart city property owners pay and agree to be annexed by the City

of Elkhart without opposition when annexation occurred. As industry and Elkhart grew, this

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arrangement promoted mainly business growth in unincorporated areas outside the city in

industrial parks and commercial developments. The Elkhart community was able to grow and

expand the work force and business was able to operate with city sewer and water.

In 1998, the City of Elkhart under the leadership of Mayor Jim Perron moved to annex

an industrial area south west of the city limits. The industrial park was developed under the

three times tool and city sewer and water was extended to the industrial park. During

construction, when a property owner asked the city to connect to the sewer and water lines the

city required the property owner to sign the three times agreement. The city would provide

sewer and water at three times the city rate and the property owner would not oppose

annexation when the city chose to annex the property.

It was a good deal, but one side failed to honor their agreement with the City. When

the plans to annex the property were announced one large-company calculating the cost to be

annexed and feeling sticker shock, the company hired lawyers to protest the annexation eventhough the company had agreed not to do so. The company broke its word to the city. This

move prompted the administration to declare it would no longer provide city water and sewer

to new industrial parks and commercial development areas outside of the city limits. This in

turn stopped growth and shutdown expansion of industry along the perimeter of the city. A

compromise was needed. Business on one hand needed municipal sewer and water to build

and operate (due to the environmental positions taken by federal, state, and local

governments) but was overwhelmed with the immediate increase in property taxes when

annexed. The city, on the other hand, wanted to continue to grow outside the city limits,

encourage industry, and employ its citizens. The Mayor invited a group of major landdevelopers in our area to serve as a committee to study the issue and a compromise was met

and the Elkhart Compact Agreement was established. While there were many things to

consider, the main objective was to be sure the city did not provide utility services outside of

the city in a manner and at a cost that put industry inside our city at an unfair advantage. The

goal of the Compact was that no matter where you chose to locate inside or outside it would

remain financially neutral.

The Elkhart Compact Agreement

The main issues facing the authors of the compact agreement were:

1. How to avoid sticker shock to companies that would eventually be annexed by the city.

2. What would be a fair formula to apply to property owners outside the city both and still

be fair to the citizens of Elkhart whose taxes help maintain the sewer and water system?

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3. If you own a facility within the city limits of Elkhart you receive 100% of the benefits of

the taxes you pay to the city; police, fire, trash, snow plowing, sewer/water, etc.

4. If you are a citizen of Elkhart your home property taxes pay some of the cost of

operating the city and you receive 100% of the benefits.

5. The Elkhart citizen and business owner pay taxes to maintain the sewage treatment

plant, the sewer and water lines, water towers, bond payments for public utility

projects, the operating costs of the Department of Public Works, the fire hydrants, roads

etc.

6. All properties outside the city limits but connected to sewer and water are subject to

annexation. Once annexed they would pay 100% of the city taxes and receive 100% of

the benefits.

7. The Compact fee is not a sewer usage fee. The Compact fee is a payment in lieu of city

taxes.

The authors in 1998 recognized that those under the Compact Agreement should not pay

100% because they would not receive police, fire, snow plowing, trash collection, etc. It was

determined by the authors that these services encompassed about 25% of the overall cost to

the city and,. therefore, those using sewer and water outside the city limits should pay the

equivalent of 75% of the city taxes. The 75% served a second purpose. If the business operated

under the 75% Compact fee fo r several years, when the property was annexed, the sticker

shock would be farless.

The theory was i f the business had grown accustomed to paying75%

of the city taxes when annexed an increase of 25% with the additional services would be easier

fo r the company to absorb and justify.

For those located inside the city limits their property taxes were and are based on the

assessed value of their property. It was determined by the 98 group that to be fair to all parties

those outside the city should pay 75% of what the same property would pay i f inside the city.

The city could not send a property tax bill to property owners outside the city limits so the

question was how could the city collect the 75%1 There had to be a way and it has now evolved

into the monthly Compact bill.

As to the benefits of being connected to city utilities they concluded it was more than just

having the benefit of sewage treatment and clean water. According to the State Building

Codes, if the property owner's facility is over 12,500 square feet the facility must have a fire

suppression system or firewall to expand the facility.

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Insurance companies require annual pressure and system tests. Municipal water provides

ample pressure for most fire suppression systems.

And there was the environmental issue. Due to recent environmental regulations, most

financial institutions and insurance companies would require a business to have municipal

sewer and water especially after the 2007 financial crisis and its effects on commercial real

estate. Therefore, both existing building owners and new construction would greatly benefit

from having municipal sewer and water. Being connected also translates into lower insurance

rates. Most insurance companies favor having a building served by municipal sewer and water

which would reflect in lower insurance rates for the property owner (fire suppression and less

risk of environmental contamination). Since the property is located outside the city limits the

tax rate for property taxes is less and those under the Compact fee can budget to pay monthly

installments rather than two large payments per year. Because the assessed value of a property

is calculated once a year, new construction can calculate the Compact fee months in advance

before the assessed value is determined and budget accordingly. Finally, the overall tax package

with a Compact fee included is still very competitive when compared to other municipalities

within the region. It was a thorough study of the needs of both the city and its neighbors on its

perimeter.

These are my findings based on hearing the history of the Compact, while meeting with one

of the authors, listening to members of the Common Council and also to the concerns of some

of those affected by the Compact and crunching a lot of numbers.

First, I find that calling something that is clearly defined by another name clouds reality.

Payment in Lieu of Taxes (PILOT) is reality. Therefore, the revision that I will be sending for

Council approval will remove the title word Compact and replace it with Payment in Lieu of

Taxes (PILOT). That is what it is. That is what South Bend and Goshen call what we have been

calling a Compact.

And, while it appeared in 1998 that the annexation of properties outside of our city limits

had been made very difficult due to the actions of the state of Indiana, it is even more difficult

today because Elkhart County has established TIF districts outside of our cities. It is of no

benefit for a city to annex property located in a county TIF district. The city provides all the

services and the County gets the taxes on the improvements.

Another finding is that the ordinance using the assessed value to determine what the

payment should be is still the right way to go. It is a tax and our taxes are based on our

assessed value. The authors of this Compact now to be called PILOT understood that and we

concur with their opinion today. You cannot establish a fee that supports the City taxpayers

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day to day operation based on usage. That is a monthly sewer service rate that all of us pay and

that money goes directly to the utility. All of us who live or operate a business inside of our city,

the same people who own the utility pay the monthly usage fee and then also pay the city tax.

The PILOT was deSigned to assist the people of Elkhart by supporting a portion of the city's

operation. We also are reminded that the intended PILOT from the beginning was to makeyour choice of location inside the city or out financially neutral. And the city simply must not

lend itself to any situation that creates a financial advantage to locate outside of the city limits.

Finding Mayor Perron's notes and documents and meeting with one of the authors of the

Compact I finally discovered why 75%. That seemed to me to be the problem today. 75% today

did not seem to be getting us where the authors of the Compact wanted us to be. After the

committee in 1998 made their decision that the Compact was of necessity to level the playing

field they took into consideration the fact that those industries outside of our city do not

receive 100% of our programs. They determined by calculating that what they do not receive

would equal about 25% of the total budget. Therefore, they came up with a 75% factor. Sowhile the Compact is not total ly financially neutral, they felt it was fair to reduce the city tax

portion by 25%.

It is also quite evident that there was no Circuit Breaker in 1998. As I continued to gather

information and run the calculator what became evident was the 75% of yesterday now

equaled hundred percent today because of the Circuit Breaker. Using the 75% factor today and

factoring in the Circuit Breaker those industries outside of our city will be paying the same taxes

as those inside. That was not the intent of the founders of the Compact. Again, the premise that

they worked with was to make it as finanCially neutral as possible and yet recognize that those

in industry outside of our city do not receive all the tax supported benefits. The Circuit Breaker

has to be considered today. It is obvious that there needs to be a change in the formula. We

then looked at various percentages, knowing what our target must be to continue to support

our Great Elkhart Fund and have come to realize is that the new factor in the formula will be

500..6. That puts 3 of the 4 major cities in the region at the same level, South Bend, Goshen, and

Elkhart. Mishawaka does not extend utilities unless the property is annexable. This achieves

another level playing field.

The current PILOT will be reduced for all who are willing to stay connected which includes

those who have been our customers over the last15

years. Collectively, all of our industrialcustomers outside of our city will realize an annual reduction of $787,162 with the 50% factor.

The city's expected PILOT revenue will be $1,574,328 down from the 75% rate which was

expected to generate $2,361,492, but sufficient to maintain our Great Elkhart Fund, supporting

some very important programs. I have said over and over that any changes in the formula must

be in the best interest of the owners of the Public Utility. They are the people of the City of

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Elkhart and those industries that have chosen to locate within our boundaries. I believe what I

am sending to the Common Council gives our outside the city customers the relief they are

seeking and intended by the original Compact and at the same time will serve the people of

Elkhart in a just and fair manner. One can never consider any issue totally closed. With

downturns, upturns, possible changes inthe

Circuit Breaker,assessed

value, etc., the City willprobably revisit our program many times just as it will other policies and ordinances overtime. I

do remind you the entire offering as described here is subject to Council approval.

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Statement from Mayor Moore's news conference

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