A directive from Gov. Mitch Daniels to the Indiana Gaming Commission to investigate an East Chicago nonprofit group which has received nearly $14 million in casino dollars since 1997 hints at yet more corruption in East Chicago, although readers of Indiana's Gaming Insight first learned about this trouble more than a year ago in a March, 2005 edition of the publication. The AP's Mike Smith reports:
An Indiana Gaming Commission probe into how a company used some of the millions it received in casino money could end with the state cutting off the revenue stream, Gov. Mitch Daniels said Tuesday.
East Chicago Second Century Corp. has received more than $14 million from a local casino since 1997 under a contract that gives the private company and two nonprofit foundations a small percentage of the casino's gross receipts. The foundations were to use the money for educational programs and economic development, and Second Century was to focus on housing and retail construction.
Daniels directed the gaming commission to investigate after East Chicago officials said the recipients might have misused some of the money.
The administration of Mayor George Pabey, which contends the casino revenue is "public funds," said the foundations overpaid staff and board members, paid large salaries to consultants without requiring them to do significant work and provided little oversight on how grant money was being spent.
The city also said Second Century would not open its books for public inspection, a refusal that has prompted accusations of waste or inappropriate expenditures for political purposes. It also said former longtime Mayor Robert Pastrick negotiated transfer of the company to political supporters without Common Council approval, thereby transferring property rights belonging to the city.
Second Century's attorney, Lee McNeely of Indianapolis, told Smith he was "baffled by the Governor's comments, which appear to be both incorrect and inappropriate." He claims the Gaming Commission lacks authority to void the contract. He may be correct in that assertion, but the Gaming Commission could, in effect, condition the casino's continued licensing by the Gaming Commission on its agreement to sever its ties to Second Century. If the casino had to choose between its license and Second Century, you can bet it will choose to cancel its contract with Second Century.
McNeely is very upset with the Governor's comments. Smith writes, "McNeely said Daniels' comments may have irrevocably tainted any proceedings by the commission. "The fact that the state's highest ranking official has expressly directed the outcome of the proceedings of a supposedly independent agency is very troubling," he said.
In defense of his comments, Smith writes, "Daniels said that hopes for a resurgence of Lake County and northwest Indiana depended on an end to corruption "and even the appearance of it . . . Making sure that gaming proceeds are used ethically and solely for the betterment of the community is an essential step in this direction," he said.
The Indiana Gaming Insight originally broke the story in March, 2005 after Mayor George Pabey (D) succeeded the scandal-plagued former Mayor Robert Pastrick (D). As IGI wrote then:
Expect the Indiana Gaming Commission to take a new look at two foundations that were established as part of the City of East Chicago’s initial riverboat bid and funded by casino proceeds. New East Chicago Mayor George Pabey (D) and the city council want city control over that money because they have been unsuccessful in trying to determine how the Twin City Education Foundation and the Community Development Foundation have their share of the casino revenues, because some of the politically connected individuals serving on the boards are being paid large stipends, and because the entities appear to have spent as much on wages and contracts as for charitable or economic development projects.
As the IGI report pointed out, board members of these so-called nonprofits were being paid annual stipends of $16,000 for service that is typically volunteered by persons who serve on nonprofit boards. The IGI report also points out that Second City is actually a private, for-profit real estate development firm which receives 2.75% of the adjusted gross revenues generated by Harrah's East Chicago casino under an agreement Harrah's inherited from Showboat Marina Casino Partnership, which it purchased in 1999 (whichHarrah's later planned to transfer to Colony Capital). According to IGI, Second City is run by cronies of Pastrick, including Thomas Cappas and Michael Pannos. Pannos is a former state Democratic Party chairman and original investor in Showboat. Cappas was thought of as a "shadow mayor" during Pastrick's long tenure as mayor of East Chicago. Second City hired former Gov. Frank O'Bannon's former counsel, Fred Biesecker and Ice Miller "to fight demands by the new city administration for an audit of its finances” IGI reported. Commenting on Harrah's proposed transfer of their license to Colony Capital, IGI wrote:
While we can’t recall an instance in which a new local development agreement was required as a part of any license transfer, we also can’t recall a situation quite as strange as this one, and the license transfer issue. The circumstances regarding the change in city administrations also affords the newmembers of the Gaming Commission an opportunity to approve a new plan (which the city suggests is far better, and would involve no additional funds) without creating a general precedent for the future.
This story has all the signs of blossoming into a full-blown scandal. And if it does, it could be bad news for some big-time Democrats in Lake County.