Friday, August 7, 2009

The Capital Improvement Board Magically Cuts Deficit; CIB Puts $15 Million Gift to Pacers Back on Table After Council Committee Meeting

Is it any wonder that people, including the state legislators, do not trust the folks over at the the Capital Improvement Board? For months, the Mayor's Office and representatives of the CIB have been complaining that the CIB has been cut to the bone and that no further cuts were possible. We heard them complain about how the legislature dropped the ball in the special session and how they would be back next year asking for the authority to raise more revenue, i.e. increase taxes to close the CIB deficit. At a meeting of a council, we were told that the plan to raise several taxes, starting with the hotel tax and borrow more, was only a "band-aid" on the hemorrhaging CIB deficit.

Now suddenly, on the eve of what might be a stinging defeat to raise the hotel tax to 10%, the highest in the country, the Ballard administration announces that the projected $12 million deficit after their planned tax increases and additional borrowing, would actually only be $5 million. The Indianapolis Business Journal, described it as a "mystery" how the CIB cut out $7 million of the deficit since the close of the special session. Scott Olson of the IBJ reports:

The beleaguered Indianapolis Capital Improvement Board has whittled its anticipated 2010 deficit of $47 million to only $5 million. But how it slashed $7 million since the end of the Legislative special session and how it proposes to close the final gap are a mystery.

Paul Okeson, chief of staff for Mayor Greg Ballard, said the CIB rebid some of its contracts but reiterated that “everything is on the table.”CIB President Bob Grand could not be reached this morning for comment.

The CIB, which manages the city’s professional sports facilities and the Indiana Convention Center, has struggled much of the year to close the projected deficit.

The not-for-profit faces a shortfall largely due to the additional $20 million required annually to operate Lucas Oil Stadium, which is much larger than the RCA Dome it replaced. The organization also expects to absorb $15 million next year in Fieldhouse operating costs.

The CIB meets Monday to consider next-year’s budget, after taking a one-month sabbatical while state lawmakers attempted to help solve its financial crisis.

Besides approval of the 2010 budget, the CIB lists “financial update and borrowing resolution” and “security contracts — extension & saving” among agenda items for Monday’s meeting.At the last CIB meeting in June, Grand said members already “have cut into the bone” but acknowledged that it’s possible to lop more from the budget.

Also Monday, the City-County Council is expected to approve a provision made by the General Assembly to raise the local hotel tax from 9 percent to 10 percent, which would generate roughly $4 million annually.

Tied to approval is $8 million in funding the city expects to capture by expanding the Professional Sports Development Area to include sales taxes generated at the new J.W. Marriott hotel on the western edge of downtown.

“We’ve got to focus on getting through Monday, on the full Council vote to pass the innkeeper’s tax,” Okeson said.

Wait a second...look at the highlighted text in the Olson article, which I restate "The organization also expects to absorb $15 million next year in Fieldhouse operating costs." Leading up to the Rules Committee meeting and at the meeting, councilors were telling the public that the CIB had taken the $15 million to the Pacers off the table. Chairman Robert Lutz at the meeting even corrected speaker Sean Shepard that the $15 million was no longer being considered when Sean started to address it during his speech.

After the meeting, I wrote that the council members were being played, that the CIB had no intention of taking the $15 million to the Pacers off the table. Well, guess what folks? It's back. Council President Bob Cockrum and Councilor Lutz should be outraged because they personally went out on a limb assuring the public that the $15 million had been taken off the table when it was not. They were played for suckers by the CIB.

Let's recap. So as part of the bailout the CIB plans to make taxpayers pay $15 million more a year to pick up the operating costs on Conseco Fieldhouse, a building on which the Pacers Sports and Entertainment Group get 100% of the profit. The CIB, without so much as taking a vote, while deeply in debt, cut a behind closed doors deal to do this for the billionaire Simons brothers, even though the Pacers have 10 more years on their contract and they would have to pay $50 to $125 million to break the lease early. Translation: the Simons have no leverage whatsoever to demand that the CIB cough up $15 million more for the Pacers for at least another 10 year. Now are we still supposed to believe there is no conflict of interest with the attorney for the Simons, Bob Grand, being President of the CIB?

At least with Lucas Oil Stadium, the CIB gets 1/2 the revenue on non-Colts events while paying al the operating costs. At Conseco, if the CIB has its way, it will get 0% of the revenue while paying to operate the building.

The folks at the CIB have not learned their lesson from the Lucas Oil Stadium fiasco and do not deserve another dime of taxpayer money. The council should vote "No" on Monday.


John Livengood said...

Paul - you still do not offer a solution to the current crisis. At least the Hotel Association offered a solution during the legislative session. We do not like the current option they have given to us but it is all we have to avoid shutting down the convention business. We urge the Council to vote yes.

Blog Admin said...


Unfortunately, no one has ever asked what we the people want. Or if they have, refuse to listen. Us common folks don't have the big bucks to wine and dine state legislator reps and city county council reps like the lobbyists do, or have the insider connections to become head of a not-for-profit corportation or sit on a government board with little to no oversite.
Paul, Gary, and others have posted many common sense solutions that start by identifying how the CIB got into this mess. It starts by handing Lucas Oil Stadium back to it's owners, the State of Indiana. That eliminates $20 million. Then we refuse Bob Grand, the Simons' attorney, to give the Simons a $15 million gift. Then any other supposed debt needs to be audited and ensured that it never happens again.
People on the council should know borrowing money is not a good way to eliminate a debt.

Downtown Indy said...

Don't buckle to the Simon's wishes. Make them pack up and leave. Collect the termination payment. Fix the CIB shortfall and then some. Book Conseco for a multitude of other events. Get 100% of the revenue. Make money (for once).

Problem solved.

Paul K. Ogden said...


Actually I have offered solutions. However, since they don't fit the assumptions of what the CIB/ICVA folks want done, it's not counted as a solution.

The first step is to take the $15 million to the Pacers off the table. There is absolutely no reason to be doing this. The Pacers have no leverage to demand this. Elimination of that $15 million liability eliminates a lot of the looming debt.

Gary Welsh and others have suggested we just need to give the Lucas Oil Stadium back to the State since we don't owe the building anyway. That's a possiblity and an interesting way of addressing at least $20 million of the problem. That and taking the Pacers $15 million off, accounts for $35 million there.

I would ask for a bankrtupcy authorization from the legislature and with that in hand, renegotiate the Colts contract so that they have no choice but to cough up more of that revenue from the building. I would also use the BK authorization to reduce and restructure the debt that is owed. You probably would never even have to file.

If the Colts/Pacers and creditors don't want to play ball, you let the CIB go into Chapter 9 BK. In Chapter 9, the BK judge can't order the CIB to sell assets (because of federalism) but the judge can, and would, order a restructuring of the existing contracts and restructure debt. (I should point out that the CIB can also be forced into BK by creditors.)

It's all about negotiation leverage, something the folks on the CIB seem to have no concept of, which is again evidenced by the CIB trying to pick up $15 million in operating costs on Conseco Fieldhouse when the Pacers have no leverage (due to the $50 to $125 million penalty clause in the contract to quit the contract early.)

Of course, like with any bankruptcy, it doesn't do any good if the client just goes back to the same old habits that led to all the red ink. The structure of the CIB desperately needs to be changed, and Bob Grand, who is attorney for the Simons, should never have been appointed to that position and should be required to resign as part of any resolution. The CIB folks have been irresponsible for years. The structure desperately needs to change.

As far as solutions, I guess I could ask the same: how is raising taxes to give Indianapolis one of the highest hotel tax in the country going to be good for the convention business and tourism? Other cities are going to use that against Indianapolis. It's the same with the other taxes. Raising taxes that hit visitors particularly hard is going to lead to less, not more, convention businss and tourism. That's Economics 101.

What the CIB has been doing has been described as a Ponzi scheme. It's an accurate description. We are continually pumping money into the CIB which then gives it away mostly in poorly negotiated sports deals. There is no sign that raising these three taxes and borrowing more money would be the end of the CIB's demands for more revenue from taxpayers. In fact history suggests it won't be.

Paul K. Ogden said...


The Pacers are never going to come up with the $50 to $125 million cancellation fee to buy out the end of the contract.

Downtown Indy said...

I know it Paul. They'd come up with some way so that the city would pay all their expenses to move the team elsewhere.

That's how things work in this town.

I know said...

You are absolutely right about how things work in Indianapolis and it is true for all of Indiana. It is being done right now for wealthy, powerful people who have messed up a huge State Contract, defaulted on their Bonds and now face foreclosure and everyone is being told to shut up while a plan is devised to bail them out.

Tax dollars will always be used to help bail out friends while the the law enforcement community looks the other way out of fear and the local, state and federal prosecutorial officials refuse to do their jobs because of power, greed and corruption.

The conviction of US Congressman taking bribes, Chinese officials being dealt the harsh penalties for corruption they are handed and the reminder that everyday Americans are fed up with the does not seem to even find a shadow of reality in Indiana politics.

Indiana can do whatever it wants.....whenever it wants all it has to do it put the fear in the people and the white collar gang steals away.

jabberdoodle said...

John -- McANA has proposed that a $20 Million payment in lieu of taxes be obtained from the airport to tide the CIB over for a year. During the time out, there could be an analysis of what the problems are, instead of relying on guesswork and biases.

With the problems identified, real solutions could hope to be made.

But, there is a locomotive approach to gathering the needed votes for this plan that everyone agrees won't work, so nobody is listening to anything else. They just keep repeating that it is the only solution on the table, when that is not true.

And, I agree with Paul - that $15M is so stubbornly and inexplicably kept on the table, even though we supposedly don't have enough money to keep the CIB afloat, the economy is horrid, and Pacers attendence sucks. It should have been the first thing demanded be taken off the table.