A Look At City Finances: We're Screwed

Years of overtaxing, overspending and oveborrowing are coming home to roost in Indianapolis. If we were a business, we would be hiring a good bankruptcy attorney. But this is government so they'll look for more ways to screw the taxpayer to get by. The Star's Brendan O'Shaughnessy takes a look at the problem and has this to say:

Whether they send their children to its schools, use its libraries and stadiums or ride on its buses, the people who live and pay taxes in Marion County are about to enter an era of cuts in government service.

Schools are already trying to identify where costs can be cut to ensure money is available to give teachers raises.

The library system has pared spending to avoid closing on Sundays.

The agency that will run the new Colts stadium is worrying about how to find millions of dollars in new annual operating expenses.

Tight budgets already have created a problem for the agency that salts roads when it snows.

And the city's bus operation could be forced to cut routes and reduce frequency if its revenues slide.

Money flowing in simply isn't keeping up with the rising cost of delivering services. Expenses are being driven up in part by the ever-climbing costs of labor, fuel and health insurance.

Projections show the city and county will run through reserves of about $50 million over the next three years, then plunge into red ink in early 2011.

"Clearly, this doesn't work," city Controller David Reynolds said this past week, pointing to a chart in his office showing the city's cash reserves on a steep downward curve that ends in a $101 million deficit in 2012.

"We've got a problem. . . . Three years out, we'll have zero cash."

Caps on property taxes called for in Gov. Mitch Daniels' property tax relief plan will only aggravate the problem, resulting in the loss of about $41 million in property taxes out of the combined city and county budget by 2010 and $108 million for all of Marion County's various taxing entities that year.

Reynolds said it's too early to lay out solutions. But he noted that, aside from public safety spending, his instructions from the mayor were to "leave no stone unturned" in looking for potential savings.

The Ballard administration, however, is adamant about avoiding tax hikes. Marion County's income taxes went up just last year, climbing 65 percent to 1.65 percent from 1 percent. But with state lawmakers likely to adopt the property tax caps, local politicians may have no choice but to raise fees and local income taxes to find the money to keep government running.

As I pointed out in my post about Mayor Ballard's testimony before the House Ways & Means Committee, the groundwork is already being laid to tell people that we're permantly stuck with Mayor Peterson's $90 million, 65% increase in the local option income tax. Even with the more than dozen tax increases during Peterson's tenure, there isn't even close to enough revenues to cover projected spending. O'Shaughnessy explains:

Were it not for its reserves, Indianapolis government already would be operating in the red.

A five-year forecast by Bart Peterson's administration -- prepared in December, the month before Ballard took office -- shows that the city and county budget will take in $897 million in tax revenues this year and spend $909 million.

The gap between revenue and spending is projected to more than double, to $30 million, in 2010 and climb to $45 million in 2011, when reserves will run dry.

Of all of our current spending problems, the one that is the worst case of self-inflicted harm is the Lucas Oil Stadium. As you've heard me complain on numerous occasions, our city leaders had the infinite wisdom to strike a deal with Irsay that provided no means of paying for the operating and maintenance costs of the new stadium once it is built. On that, O'Shaughnessy writes:

When lawmakers raised taxes to build the new stadium, the financing package they passed did not include money for the extra security, cleaning crews, electricity and other expenses that come with maintaining a stadium that is nearly double the size of the RCA Dome.

CIB officials have said the new stadium could cost roughly $10 million more per year to run than the Colts' current home.

They plan to draw down reserves, which will last until 2010, and hope to tap any leftover Convention Center construction funds from higher-than-expected food and beverage tax collections to make up the difference.

CIB President Robert Grand said the board will have to wait and hope the Convention Center expansion does not run into problems and eat up the expected reserves.

Notice how O'Shaughnessy's report conveniently blames state lawmakers for the problem by suggesting it was of their making because they didn't include those costs in the financing of the new stadium. State lawmakers knew exactly what they were doing. They were adamant that revenues from new taxes be used exclusively to retire the bonded indedbtedness incurred for the stadium's construction. In the past, the CIB was allowed to use tax revenues intended for retiring the bonds on the RCA Dome for operating and maintenance costs. As a consequence, after 23 years we still owed $75 million on a building that cost about that much to build, a building we're preparing to demolish in a few months to make way for an expanded convention center. By way of comparison, it was as if you or I had borrowed money to purchase a Chevy Impala on which we could only afford to pay the interest, and then after a few years, we took the Chevy Impala to the junk yard and borrowed ten times as much money to buy a new Rolls Ryce on which we can't even afford to buy the gas to keep its tank full or perform basic maintenance on it.

Now, the correct solution to the Lucas Oil Stadium problem should be to force the CIB to go to Mr. Irsay and explain to him that our city simply can't afford to carry any more of his costs, and that he'll need to pick up the maintenance and operating costs for the stadium just like other football team owners around the country do. If the past is any indication, however, you can bet that Mr. Irsay won't be asked to do with fewer Kerouac manuscripts or Oxycontin prescriptions. Instead, Bob Grand and company will get lawmakers to tweak the state law and allow the CIB to use the taxes you are paying for the construction costs on the stadium to pick up these annual expenses. And in about 25 years, we'll still owe about $700 million on the stadium.

The bottom line is that the city is screwed. We are bankrupt and there are no easy solutions for getting out of this mess. The very people who created this mess were very quick to wrap their tentacles around Mayor Ballard shortly after his election. Hopefully, his luck will be better than Pope John Paul I's was when he attempted to tackle Vatican Bank corruption too soon into his short-lived papacy. The stress of the job is sure to be overwhelming as he is forced to make one unpopular decision after another in the coming next four years. Let's just hope he opts for long-term fixes and not the bandaid approaches of his recent predecessors, even if it makes him a one term mayor.