Saturday, October 17, 2009

CIB Claims to Now Be in Better Financial Shape Than Expected, Giving Money to the Pacers Placed Back on the Table

One of the frustrations voiced by state legislators during the debate over a tax bailout of the Capital Improvement Board was difficult in getting straight numbers from the CIB over its financial situation. The numbers always seemed to be changing. Well, they changed, yet again.

Today's Indianapolis Star contains a story suggesting that the financial woes of the CIB are not as great as officials expected. Supposedly things like laying off some low paid workers, reduced energy costs, savings on cell phone bills and travel expenses have allowed for a dramatic cut in expenditures to the tune of $26 million. CIB officials now say they may even be able to avoid borrowing $9 million from the State. One should remember that the legislature made Indianapolis' raising the hotel tax to the highest in the country, a necessary first step to the CIB borrowing the $9 million. The CIB told the Council that it desperately needed the $9 million loan as a reason to support the higher hotel tax. Now that the CIB has the higher hotel tax in place, and two more tax increases on the way, the CIB says they might not need to borrow the $9 million after all.

The problem with this debate is few people (and virtually no one in elected office) take a close look at the numbers. Could those cuts made this Summer by the CIB have produced a $26 million savings? Absolutely not. The numbers don't add up. The only valid explanation is that the CIB has not been honest about its budget deficit numbers, inflating them and deflating them as necessary in order to achieve certain goals.

What is the incentive behind the current more optimistic view? One only has to look at the article. This November marks the 10 year anniversary for the Pacers contract, the time frame for reopening negotiations with the City on its Conseco Fieldhouse contract. CIB officials have again started talking about picking up the operating costs at Conseco Fieldhouse for the Pacers, an issue the CIB emphatically said was not on the table during the CIB bailout discussions at the Council this summer.

To recap, the Pacers bear the cost of running Conseco Fieldhouse but receive 100% of the profits off of the building. What the Simons, the owners of the Pacers want, is for the CIB, i.e. Indianapolis' taxpayers, to pay the operational costs of running the building while they continue to get 100% of the profits. While this would seem like a boneheaded thing to do, the CIB, headed by Bob Grand who represents the Simons and the Pacers, has readily agreed that the taxpayers should pick up these operating expenses.

To do so during this cycle would require the CIB going back to the Council and getting its budget changed. Now that the inital 10 year period runs out this November, suddenly the Pacers' gift is back on the table for negotiation. The article this morning, including the better financial picture for the CIB, simply lays the groundwork for the CIB to ask that it be allowed to go forward with giving the Simons milllions more.

Earlier this year, I spent some time studying the poorly-written, extremely complicated early termination provision in the Conseco Fieldhouse. I came away with the interpretation that it would only be triggered if: 1) if certain financial thresholds have not been met; 2) the team was being sold; and 3) the team was being moved out of the city. While Pat Early focuses on #1, he overlooks #2 and #3. All three have to be met. He also overlooks the incredible financial penalties that the Pacers would face should they opt to exercise the early out clause. We are talking penalties of probably $165 million the 11th year of the contract (2009-2010) and only decreasing by a $10 million or so every year.

The Pacers will never agree to pay the penalty for early termination. The team has no leverage to demand more money. Nonetheless, the CIB if laying the groundwork to ask that the Council have the taxpayers shell out more money to the billionaire Simons family. The cuts this summer were nothing more than a PR move to allow the CIB to claim that now it has taken steps to cut its spending, it can give millions more in taxpayer money away to the Simons.


Jon said...

I say the Pacers can have the 15 million for maintenance if and only if their owners pay for all of the perks that were gifted to them. When they pay for the parking garage or their land downtown or the Circle Center Mall rent we should have some spare change.

Downtown Indy said...

Are they really that poor at managing their money? Less than a week ago they canned two people to save money.