by Thomas P. Healy
Until recently, urban and rural school districts looking to dispose of underutilized, surplus, and/or vacant properties have been constrained by Indiana Code 20-26-7-1—the “dollar law.” It mandated that a closed, unused, or unoccupied school building be sold or leased to a charter school for $1. Further, the law stipulated that the property must be made available at that low rate for two years.
The statute has been particularly vexing to Indianapolis Public Schools (IPS) as it seeks to “right-size” its real estate portfolio, generate cash to pay down debt and increase teacher salaries, and reduce overhead costs. If not for the “dollar law,” one of IPS’s largest properties, the 16.27-acre Broad Ripple High School (BRHS) site, could fetch top dollar in the attractive Midtown real estate market.
To keep the property from being declared vacant, IPS has maintained a minimal staff presence in the building and worked with allies to lobby the Indiana General Assembly to modify the “dollar law.” The effort paid off and resulted in passage of HEA 1641, [PDF] which Governor Eric Holcomb signed into law on May 5.
READ MORE: Bob Behning: ‘Dollar Law’ Changemaker
According to IPS special projects director Joe Gramelspacher, the law is an improvement. “It accelerated the time period to 90 days from two years—that’s a good thing. And now if a school corporation wants to demolish a school and build a new one on the same site, it can do it without having to sell or lease to a charter school. Before, the law was unclear so they addressed that, which is good.”
He said what frustrates IPS the most is the law’s provision in the event a school district and a nearby charter cannot come to terms. “The property can be sold for redevelopment but a charter school within 1 mile must be provided with the opportunity to lease ‘adequate facilities’ on the redeveloped site at 50% or less of market rate – or a rate agreed upon by the parties.”
“The General Assembly is legislating property rights to any charter school within 1 mile of an existing facility,” he said. Further, Gramelspacher described the definition of “adequate facilities” as ambiguous. “It’s ambiguous for the redeveloper of a site, which translates to a lower purchase price to IPS,” he said.
State Representative Ed Delaney, whose legislative district 86 includes Midtown, sees this provision as legislative interference in a complex negotiation. “The Indiana General Assembly is an intervenor in a negotiation between IPS, a charter, and a developer,” he said. “The Legislature has put its thumb on the scale in support of several incomplete ideas.”
From the seller’s standpoint, Gramelspacher expressed concerns not only about the potential impact to the sale price but also to the type of redevelopment that could occur. “If a developer has to lease a portion of a site at 50% of market rate, that changes the financials of a project,” he said, adding, “The charter will be a loss leader and the developer would make it up by doing low-cost development, like apartments.”
Based on IPS’s public outreach, “We heard loud and clear from the Broad Ripple community, ‘No more apartments.’ But the way the law was crafted, the outcome will be apartments and a charter school.” he said. For IPS, that reduces the likelihood of a truly transformational development on the BRHS site like the one under way at the former IPS property on Massachusetts Avenue (originally built as a Coca-Cola bottling plant) that includes office use, retail, and fine dining.
By Gramelspacher’s calculation, the 50% of market rate requirement could result in a $10 million hit. “We think the Broad Ripple property could sell for between $14 million and $24 million,” he said. “BRHS appraises at around $8 million and we’re getting a premium on other properties in our portfolio—over 200% above assessed value. (In addition to the former bottling plant, he mentioned the PR Mallory Building on Washington Street.)
“We think we could sell BRHS for as much as $24 million,” Gramelspacher continued. “This is really, really big money and if a developer has to provide below–market space to a user, they aren’t going to give us anywhere near that value.”
Part of Gramelspacher’s frustration stems from what he views as a good-faith effort by IPS to be fiscally responsible. “IPS decided a long time ago that 10 high school buildings are too many. Over the last five years, IPS has sold $20 million worth of real estate and those monies have gone into the general fund and gone into teacher compensation that didn’t cost the state a dime.”
“There are some good things in the law, but we’re a bit disappointed with the strings attached,” he said. “There’s twisted logic in the thinking of the General Assembly about how school corporations need to be more fiscally responsible but then they make it harder for school corporations to make money on real estate transactions.”
Gramelspacher noted that getting top dollar for the property, which in turn results in a more valuable redevelopment of the property, then generates more property tax. “It’s more revenue for IPS and for the City, but IPS is not trying to get out quick for a quick dollar. We’re interested in creating lasting value for the city and for the school district.”
The Indy Chamber is one of IPS’s allies in lobbying for changes—both in operational efficiencies and in the “dollar law.” Mark Fisher, chief policy officer, opined that the Legislature struck the right chord with HEA 1641. “The ‘dollar law’ as it stood was not working and they made appropriate changes,” he said.
Fisher said Indy Chamber continues to have a good working relationship with IPS administration and the board of school commissioners to implement the recommendations for long-term fiscal stability outlined in a July 2018 analysis by Faegre Baker Daniels Consulting and Policy Analytics LLC.
A tangible result of that partnership was the creation of an executive task force, chaired by IPS superintendent Aleesia Johnson, that includes senior IPS leaders, including school board chair Michael O’Connor, and representatives from Indy Chamber—Fisher and president and CEO Michael Huber. [To download the full IPS operational assessment, visit Indy Chamber’s website.]
“The executive task force meets every other week,” Fisher said, “Michael Huber and I are extremely engaged and we have also kept Policy Analytics and Faegre Baker Daniels retained as advisors to ramp up implementation,” Fisher said.
He said the executive task force meetings are productive, “The big ticket items are buildings and transportation. IPS is getting a handle on facilities needs and working with IndyGo to transition high school students to use IndyGo.”
Fisher said Indy Chamber’s commitment includes raising philanthropic funds to hire two staff people for IPS and pay their salaries for three years. “We’re bringing talent to IPS who are solely focused on implementing recommendations and empowered to make the changes IPS needs to make,” he said.
The positions include an enterprise development director, which has yet to be filled and a chief of transformation. In March, IPS hired Dennis Tackitt as the chief of transformation. He will lead the project implementation team and manage day-to-day tactical activities. According to Carrie Cline Black, IPS communications manager, Tackitt will also assume management of real estate matters when Joe Gramelspacher leaves IPS at the end of July for a position with Yale University. “Dennis has been a part of the efforts behind the scenes for several months and we don’t anticipate missing a beat on this process,” she said.
IPS has issued a provisional timetable (see chart) with a September target date for the bid sale process to begin. “The administration briefed the board on the changes with the charter law at the May action session and recommended next steps for approval in June,” Black said.