Carmel committee reviews two redevelopment CDCs, flags oversight gaps

The Carmel Affiliate Review Committee met May 1 and reviewed two community development corporations that the city uses to hold and operate redevelopment assets, lease downtown office space and subsidize arts tenants.

The committee heard legal and operational summaries showing the two entities — the Carmel Midtown Community Development Corporation (Midtown CDC) and the Carmel City Center Community Development Corporation (City Center CDC, also called “4 CDC” in committee remarks) — operate under articles of incorporation that tie their purposes and dissolution assets to the City of Carmel and the Carmel Redevelopment Commission (CRC). Committee members raised governance and oversight questions, including whether affiliates should have independent counsel, how board appointments are made and which city bodies should be notified for large transactions.

Why it matters: the two CDCs hold city real estate, accept CRC grants and execute leases that can affect downtown development, Tax Increment Financing (TIF) projects and subsidies to arts and cultural tenants. Committee members said clearer reporting, conflict-of-interest rules and notification triggers for the City Council could reduce the risk that taxpayer-funded assets or subsidies are used without sufficient public oversight.

Mary Lee, speaking to the committee about nonprofit structure and tax status, explained the federal distinctions the group discussed: 501(c)(3) charities have stricter IRS restrictions and different filing requirements than 501(c)(4) social-welfare organizations, which many local redevelopment CDCs file as. Lee said the CDCs’ articles and IRS exemption applications (referred to in the meeting as the Form 1023/1024 and related filings and returns) anchor their stated purposes and include provisions that any assets on dissolution would revert to the city or commission.

Henry Mostetzky, Carmel redevelopment director, described how the Midtown CDC and City Center CDC operate in practice. Midtown CDC owns and leases parcels used for projects such as the winter farmers market building and Monon Square transactions; it has been used to accept CRC grants that then flow to developers or project work (the committee discussed a $400,000 grant used for a roundabout and a $3.5 million Monon Square sale referenced during the meeting). Mostetzky said Midtown CDC carries out real-estate transactions that were first approved by the City Council and CRC; he reported a cash balance on hand of about $1.2 million.

The City Center CDC owns part of the James Building downtown, receives rent, services mortgage debt and uses remaining revenue to subsidize three art galleries and related tenants in the Arts & Design District. Committee members heard that City Center CDC has historically received about $4 million from the CRC since its inception and that the CDC pays debt service, utilities and grants to subsidized tenants.

Committee members and presenters emphasized differences in counsel and financial advisors. City Center CDC has independent outside counsel and a financial consultant and conducts market-rate leasing through brokers and outside property managers; Midtown CDC uses counsel who represent the CRC and the city’s redevelopment counsel attends Midtown meetings and emails. Presenters said both CDCs are included in the State Board of Accounts audit processes for the city.

Discussion items that the committee singled out for further work included: standardized reporting to City Council and the public; written conflict-of-interest policies and procedures for affiliate boards; thresholds that require Council notification or approval; consideration of independent counsel for boards that conduct independent grant-making or market transactions; and board education and legal/financial checklists. Several members recommended a rank-ordered list of affiliate organizations by either dollars or risk to prioritize committee work.

Formal action: the committee unanimously approved a motion to use its next meeting to review a rank-ordered list of city-affiliated nonprofits (ranked by risk and dollar amounts) and asked city staff to begin pulling contracts, grant agreements and financial records to support that review. The committee chair and staff emphasized the work would be iterative and that further meetings or requests for information could follow.

The committee left the meeting with staff direction to prepare the documents and a request that the city legal office identify affiliation agreements, contracts and grant-authority documents for the committee’s review in a future meeting. Presenters and members said those materials would form the basis for recommendations on best practices for governance, disclosures and Council notification.