It’s hard to imagine Indianapolis without the Simon family.The most important point made in Schouten's story is the myths surrounding the Simon-owned Pacers' current lease with the CIB and the harm the CIB would incur if the Simons aren't given an additional $15 million in subsidies for Conseco's operating and maintenance expenses. Contrary to the assertions of Mayor Ballard and the CIB's leadership, the City has every reason to play hard ball in its negotiations with the Simons. Schouten explains the penalties the Pacers will have to pay the City if it pulls out of this city. The penalty to the Pacers for terminating the lease could be as high as $144 million:
The mall owner Simon Property Group Inc. is one of the city’s most prominent corporate citizens, the company-developed Circle Centre mall acts as downtown’s heart, and the Indiana Pacers franchise—owned by members of the Simon family—gives a basketball-loving state a stake in the sport’s marquee league.
But the family’s business successes and its role in building the city have come at a steep price for taxpayers. Simon and its business interests in the last 20 years have collected local government incentives worth more than $400 million, an IBJ tally of those deals shows.
The city footed most of the $320 million tab for Circle Centre and owns the land, yet Simon operates it rent free. The city kicked in $23 million for Simon to build a 14-story headquarters just six years after giving the company another deal worth $15 million to stay downtown. And the city, having financed at least $158 million 10 years ago to build Conseco Fieldhouse for the Pacers, now is working on plans to provide the team with a $15 million annual subsidy.
The city could play hardball. The Pacers haven’t been paying a $3.45 million annual fee for using 1,400 parking spaces in a cityowned garage. And even if the Pacers exercised an option to break their fieldhouse lease after 10 years, the team would owe the city at least $50 million in penalties, and probably much more, the original lease shows . . .
The city’s strategy in building Conseco Fieldhouse was to wean the Pacers off public subsidies by giving them a brandnew facility with luxury suites. The fieldhouse lease allows the team to keep all venue revenue in exchange for paying for its operation.
To that end, the city funded almost every dollar of the $183 million fieldhouse. The team was credited with a $50 million contribution for agreeing to forgo subsidies it had received at Market Square Arena, but it contributed nothing in cash. The team also was allowed to keep $40 million Conseco Inc. paid for naming rights.
CIB also built the $25 million, 2,400-space Virginia Avenue Parking Garage east of Delaware Street primarily for use by the Pacers, along with Well-Point Inc. and various city departments.
In its 1999 lease deal, the team agreed to pay CIB $3.45 million per year for the use of 1,400 spaces in the garage. On game days when pass-holders don’t take all the spaces, the team gets 60 percent of the revenue from its unused spaces. But since the team has failed to reach a prescribed 18-percent profit margin during its tenure at the fieldhouse, the contract allows the Pacers to offset the fee against its operating expenses.
“Technically, they are in compliance with the contract,” said CIB Vice President Pat Early.
Though the Pacers never made the annual garage payment, they still collect the 60-percent share of game-day revenue from the 1,400 spaces. In 2008, the team earned $233,000.
This nugget of information really dispels the myth that the Simons are currently paying all of the operating and maintenance expenses on Conseco:
The notion that the team covers all its own maintenance is a bit of a myth. CIB already pays for major expenses at Conseco Fieldhouse including new carpet and maintaining the HVAC systems. And in 1999, when the arena opened, CIB spent $62,600 on uniforms for the Pacers staff, including 580 button-down shirts, 472 pairs of pleated khakis, and 15 blazers. It also spent more than $15,000 on six NBA Fastbreak Pinball Machines.Also, repeatedly, you've heard CIB leaders say the Simons have a right to renegotiate its lease on Conseco Fieldhouse after ten years. That's not true. "Another misconception is that the fieldhouse contract gives the team the right to renegotiate its lease after 10 years—it actually gives the team the right to cancel the lease after the first 10 years if it doesn’t reach certain profitability targets," Schouten writes. And here's the important information on the cost to the Simons for terminating the lease. "Voiding the lease, though, would cost the team dearly." "It would be obligated to pay CIB a termination fee “based on a formula sufficient to reimburse the city for the economic effects of such early termination,” the contract says. "The minimum penalty is $50 million, but the contract says the Pacers’ cost for terminating the lease in 2012 could be as high as $144 million."
In a separate story, Schouten raises concerns on another subject I've raised. Are the Simons meeting the requirements of their multi-million dollar economic development incentives on Simon Property Group's downtown headquarters? Schouten's reporting raises questions about whether the Simons are being truthful about the company's current staffing level at the headquarters:
During one of the worst markets for real estate in decades, at a time when developers of all sizes are shedding employees, officials with Simon Property Group Inc. continue to insist they have had zero layoffs.Incidentally, CIB Board President Bob Grand's law firm, Barnes & Thornburg, also represents Simon Property Group. Grand and Joe Loftus reportedly sit in on weekly meetings Mayor Ballard conducts with his senior staff. The firm is also paid to lobby for the City of Indianapolis' interest at the State House, as well as legal work for number of city-county agencies. CCC Vice President Ryan Vaughn is employed as a lobbyist/attorney by the firm.
That assertion is puzzling to local market observers, who say the mall giant has quietly dropped dozens of employees at its local headquarters because of a weak business climate. A handful of those employees, speaking with IBJ on condition of anonymity, say they were among those laid off.
So why not own up? One possible reason: The $23 million incentive deal for Simon’s new headquarters, which opened in 2006, requires the company to maintain a minimum head count of 885 employees for at least 10 years. If the company drops below that figure, it could owe the city millions of dollars.
For starters, Simon could lose a tax abatement that will save it $3.8 million over 10 years. And if the city enforces the head count requirement, Simon also would have to pay for using parking garage space the city bought for the company. Simon would owe the Capital Commons rate of $125 per month for each of its 430 spaces, or about $645,000 per year.
The company insists its employee count remains well above 885. Simon currently employs between 900 and 990 people at its headquarters, said John Rulli, an executive vice president at Simon. He declined to provide an exact figure . . .
But former employees say they didn’t understand the cuts to reflect a mere reshuffling of priorities. They say Simon began dismissing employees in late January. The company in a Jan. 26 report provided the city with a head count status report tied to the tax abatement. In the report, the company said it employed 948 people in 2008, down from 975 in 2007, and up from 937 in 2006.
If headquarters employment has declined by more than 63 since Jan. 26, the company would be in violation of its incentive agreement. The parking agreement gives the city’s Department of Metropolitan Development the right to request a Simon head count once a year to ensure the company is in compliance. If the employee figure is breached, the DMD must inform Simon and give the company 90
days to comply before it can begin charging the company for parking.
The city paid $11.5 million for the eastern half of the Capital Commons garage under Simon’s headquarters. The city has not made a request for the company’s head count separate from the annual report tied to the tax abatement.
The former employees did not know how many workers have been let go but said they knew of several people across different departments who were escorted from the building.
“The company was staffed and geared up for prosperous times,” said one former employee. “David [Simon] is a smart guy. He’s making sound decisions to keep the company stable and operating profitably.”
Did you know any of these facts, Mayor Ballard, before you recklessly concluded that we have no choice but to pay the Pacers another $15 million a year before they even sit down at the table to discuss terminating their lease? These facts as laid out in Schouten's story completely dispel the myths you, Bob Grand and Pat Early have been spouting off for months. You've been publicly stripped naked because you chose to shut out the voices of people like me who actually supported your election in the first place in undertaking these deliberations and surrounded yourself with people like Bob Grand, Joe Loftus and other people on the Simon machine's payroll who could give a damn less about the taxpayers of this City. A suggestion to the City-County Council as it moves forward in discussions with the CIB. Place Bob Grand and Pat Early under oath the next time they testify in a public meeting. Then ask them about all of these little details they've withheld from the public.
Before you celebrate the disclosures in Schouten's story today, let's look at reality. As Schouten says, "the sway of the Simon name and its influence on the city’s business and convention prospects are too strong." If Schouten had included the numbers, you would discover that the Simons have contributed more to Indiana politicians than any other family in the history of this state. In the last decade alone, their contributions top $4 million. Too many politicians in this state are completely in their pocket. Notice that the Star has never bothered with this sort of analysis. Its editorial writers assume we should feel obligated to pay more subsidies to the Simons because the City's losses would be too great if the team left town. Unlike the Star, the IBJ does not rely on a corporate sponsorship relationship with the Pacers' team. I'll bet there wasn't anyone from the IBJ's payroll down in Cancun this winter on an all-expense paid trip to an exclusive resort sponsored by the Pacers.
The Pacers' demand for $15 million is premised on a claim that the team will lose $30 million this year and has lost at least $200 million over the years. Unfortunately, Schouten's story sheds no light on the validity of that claim. The team is not required to provide the CIB with audited financial statement. CIB Vice President Pat Early is a CPA by trade. He says the Pacers have opened up their books to him and he can confirm the team's claims; however, so much of what Early has already said to the public on this subject has turned out to be untrue that we simply cannot believe anything he says. If Mayor Ballard were really trying to clean up the CIB mess, he would have called for Early's resignation instead of handing out the City's highest civic award to him. Early has been on the board for nearly two decades and has served as its president. According to Grand, its current president, the CIB has been running a deficit every year since 1999. Where has Early the CPA been all of these years in trying to fix this problem?