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The Light Lease Trust Fund

The City of Fort Wayne is on the verge of getting its hands on a cool $33 million windfall… if it can get through negotiations with I&M first

By Michael Summers

michael_summers@fortwaynereader.com

Fort Wayne Reader

2010-01-25


Back in 1974, during the Ivan Lebamoff administration, city leaders did something pretty remarkable.

It was felt that the city’s electric power grid — situated in what’s basically the Science Central site these days and serviced, back then, by City Light — was not adequate anymore, and the City was looking to get out of the utilities business anyway. “We were already buying the vast majority of our electricity from Indiana & Michigan Electric Power,” says former city councilman Don Schmidt, who in 1974 was serving his first term on the council as the representative for Fort Wayne’s 2nd district. “It made sense, that if we could strike a deal to buy our electricity from I&M directly and no longer generate it, it might be financially sensible to do so.”

In order to do that, a referendum needed to be held, one of the few times in Indiana where a referendum is required. Schmidt says that it was a pretty tough fight. “A lot of employees of City Light didn’t want that to happen, because everything would be transferred to I&M and they were concerned about their jobs,” Schmidt says. “So it was contentious, there’s no question about that. But it did pass, and I think it was the right thing to do.”

It wasn’t uncommon for a city to lease out its electric utility back then — in fact, Fort Wayne may have been a little behind the times. But what city leaders did next was pretty unusual, and shows impressive foresight. They established a community trust fund, and annually contributed a specific portion of the proceeds from the city light lease.

The trust is often referred to as the Light Lease Trust, but city controller Pat Roller tells me that its official name is the Community Trust. An oversight board made up of members of city council, the mayor, the city controller and the board of public works chair meets once a year (or at least it is supposed to) with representatives from DiMeo Schneider & Associates LLC, the trust managers, for updates. “The original purpose would be to provide money for the City to get back into the light utility if they wanted to,” says councilwoman Karen Goldner (D-2), who as part of the Public Works Committee served on the Community Trust Board last year. “No one ever thought that was really going to happen, but that was the theoretical basis of it.”

Not all the proceeds from the lease go into the Community Trust. City Controller Pat Roller explains that the money is actually divided up. “Some of the residuals, or some of the excess that didn’t go into the trust fund, paid some operating costs that needed to happen to phase out the City Lights company, and everything else was put towards economic development,” Roller explains.

So how much are we talking, exactly? Roller says that the money from the Light Lease isn’t always consistent; miscellaneous costs need to be accounted for, such as an audit, for example. Currently it’s at $1.7 million. Now remember — just to bludgeon you with this point, dear reader — it’s not always $1.7 million; sometimes it’s less. But whatever it is, $270,000 of it goes into the Community Trust.

The rest of it, the part that doesn’t go into costs or the trust, goes into economic development. “It has a rich history, some prettier than others, as to some of the outcomes of some of those investments,” Pat Roller says. Recently, there were some dollars put towards South Town and to Harrison Square. Don Schmidt says that one year, some of that residual was put towards preserving another Fort Wayne landmark. “Bob Armstrong (Fort Wayne’s Mayor in the late 70s) had about $800,000 of that used to refurbishing the Embassy. That was a precipitating action that caused that building to be saved.”

But every year, for 35 years, the trust received $270,000 a year, and it has been bubbling away in that trust for the past three-and-a-half decades.

Schmidt says that at first, the trust was invested very conservatively and didn’t grow a great deal. “But when Graham Richard became mayor, he indicated he thought we could do better,” Schmidt says. “He placed the money with an investment firm, and they put it into a higher type of earnings — stocks, higher-returning bonds, etc.”

Pat Roller currently puts the Community Trust at about $33 million. It took a big hit from the economic meltdown last year, but has been able to recoup a great deal of its losses, bringing it close once again to its peak (around $35 million). “It’s a pretty amazing document, I think, given the time it was prepared,” says Roller. “I applaud the elected officials of that time. But then again, our city has a long history of fiscally conservative principles. That’s under both Democratic mayors, Republican mayors… That’s going back 35 years, and I think we should be proud of that.”

Now, after bubbling away untouched for 35 years, that money will become available in March, when the old lease between I&M and the City expires.

Or not, if the two parties can’t resolve their differences in mediation by then, and that doesn’t look like it’s going to happen any time soon.

The current conflict between the City of Fort Wayne and Indiana & Michigan Electric Power can seem a little confusing, and has it’s own complicated history. Basically, the City’s argument is that it still holds the exclusive right to serve customers in the Light Lease territory, and thinks I&M should pay more for the service rights. I&M counters by arguing that a state law passed in the 80s (more on that in a moment) makes this part of Indiana I&M’s exclusive service area. I&M wants to negotiate with the City to either sign a new lease or purchase the physical assets and the service rights, but the City contends that what I&M is offering is too low.

Early on in the negotiations, the City said that the price difference between the two sides was between $50 million and $100 million. Of course, that was early on — these days, no one is saying anything, since there’s a gag order in place that prevents either side from publicly discussing the negotiations.

That law referred to a couple paragraphs above was passed by the state in the 80s and essentially carves the state up into service territories; I&M was granted exclusive rights to serve this part of Indiana. “With utilities, their profit is regulated by a percentage of their investment,” explains Don Schmidt. “So, if you had two companies that made exactly the same investment, it would increase the rates for both customers. For a utility model, it made no sense to have that overlapping infrastructure expense. If you only had one entity out there, it would be cheaper.”

But the law did not address the pre-existing contract between I&M and the City of Fort Wayne, which sort of leads us to where we are now. The fight looks like it could be a long one. Word is that I&M feels the law is on their side, and has not moved much from what the City considers a “low ball” offer.

There are some concerns over what is going to happen to the Community Trust in all this. “I am personally of the opinion that this is an important community resource, an important community legacy, and we need to make sure there’s a lot of opportunity for public input into how that legacy best be utilized,” says Karen Goldner. “One way of thinking is ‘let’s just cut property taxes by $30 million and spend it next year.’ That’s not the kind of idea I think is particularly appropriate or respectful, frankly, of the long-term thinking that was put in place in the early 70s when it was set up.”

Goldner adds that when Mayor Henry was campaigning, he anticipated a process where there would be a lot of opportunity for public input. In fact, public discussion about the Community Trust was supposed to start in 2009, but that negotiations between the City and I&M have gone on much longer than was anticipated a year or so ago.

Goldner won’t say what she would like to do with the money from the trust — “it’s not city council’s money, it’s not my money, it’s the community’s money” — but one idea she does offer is that the money be treated like a community endowment, where we spend the interest but maintain the principle. “I like that idea, because it was entrusted to us by people who were very forward-thinking 35 years ago, and I don’t think that just spending it all in one fell swoop is necessarily the most responsible thing to do. It’s a resource we should take care of and pass on.”

But there are fears that the City could use a hefty chunk of that money to pay for legal fees accrued in its battle with I&M. City councilman Tom Smith (R-1), another council member who served on the Community Trust Board, says that would be a massive political mistake on the Mayor’s part. In fact, he starts laughing when the idea is brought up. “Well, we’ve probably spent nearly $600,000 on legal funds so far,” he says. “That is a bone of contention, how the Mayor is going to pay for these legal fees, but… to take this money that was meant for building our community and use it to pay legal fees… I think the public would absolutely hate that. It would be one of the worst moves you could possibly make.”

For his part, Smith says he’d like to see the trust get even larger before we start doing anything with it, and like Goldner, he believes public input is absolutely essential. “More than just ask people what they’d like to spend it on, because you’ll just get this huge array of choices, come to them with some areas of spending that have been vetted. Give them some choices.”

“If I were going to spend it right now, I’d do it for the most basic thing — fixing neighborhood streets,” Smith adds, laughing. “That’s probably the most unsexy thing you could do, but that’s probably the greatest need. But if we spend it now or a little later, spend it on something that’s a need, not a want.”

Don Schmidt is no longer in city politics, narrowly losing a re-election bid in 2007 after 35 years on council. But he still follows politics closely, and offers what some might consider a quintessential Republican response when asked what he would like to see happen to the Community Trust money: “If you have to sit around the kitchen table and try to think of ways to spend the money, it probably shouldn’t be spent.”

Schmidt favors letting the project come to you rather than searching it out. “What you do is keep it there until something comes along that strikes the community’s fancy,” he says. “An example would have been Parkview Field. Rather than doing it in the fashion we did, which is to put it on to the tax rolls basically, using property taxes that could have gone in other coffers, you could have financed some of it with the trust money. That probably would have been an appropriate use for in the community’s eyes.”

The lease between I&M and the City of Fort Wayne expires in March, though it will probably be extended while the two parties are in mediation, and like we said earlier, no one expects that to end anytime soon. Let’s hope that, when all is said and done, we approach the legacy of Community Trust with the same level-headedness and patience as was seemingly shown by the people who set it up 35 years ago.

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