Saturday, April 18, 2009

Indy Taxpayers Have Given Simons More Than $400 Million!

Hallelulah! Someone in the local news media has finally done a story on just how much Indianapolis taxpayers have been subsidizing the Simon family's private family ventures instead of their generous contributions to area charities. The IBJ's Cory Schouten does the math on the total value of public subsidies to the Simon family over the years and the amount is staggering--over $400 million. [Note: These numbers don't include all of the subsidies the City gave to the team under the old Market Square Arena lease before the City imploded it; the Simons demanded MSA be imploded after it built Conseco Fieldhouse to prevent the facility from being used by IUPUI and offering the public a competing venue for special events.] Schouten explains:

It’s hard to imagine Indianapolis without the Simon family.

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 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 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.

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.”
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.

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?

14 comments:

Downtown Indy said...

My God, this is sickening. Our city needs a complete housecleaning.

Unigov said...

Good work.

Another beneficiary of tax abatements - Lilly. They got zillions of dollars in tax breaks after promising to hit specific employment targets in Indiana.

Since then they've laid off thousands of workers.

Gee, I wonder why the state hasn't gone after the tax breaks - clawback ?

Cause the governor is the former VP of Lilly ?

I know said...

Advance Indiana, Thank you!

Keep digging and reporting.

Paul K. Ogden said...

Unigov,

I doubt it is simply because the Governor used to be a VP at Lilly. Time and time again, government fails to follow up on committments private companies have made in these public-private deals.

I know said...

Morton Marcus editorial in the IBJ really calls out the Legislature and rightly so as the disgrace of Indiana.

It is on target and good read. There are some good people in the Legislature. It is too bad they are out numbered by the "Good Old Boys" in the halls with their hands out.

JohnBoy said...

This is unbelievable. How can we get the word out? We can't depend on the the local newspaper (which is invested in the fieldhouse!)

Advance Indiana said...

If I could afford it, JohnBoy, I would get the IBJ's permission and reprint this article and send it to every resident of Indianapolis. It would be a waste of time to send it to any of the politicians. They already know all they want to know, but if they suddenly started hearing from thousands of constituents about their outrage, it would make a difference.

HOOSIERS FOR FAIR TAX said...

Now is the time we make lemonade, for we are now given the opportunity.

http://hoosiersforfairtaxation.blogspot.com/2009/04/indianapolis-city-councilors-have-great.html

HOOSIERS FOR FAIR TAX said...

And Gary, you realize how irritated I became that the organizers of the tea party totally BLEW, just wasted, a huge opportunity with thousands of citizens being driven there by the mainstream media they had handed to them, to do a damned thing to clean up our own backyard.

Gary, the cleanup is going to get done anyway. And you are a big part of the reason why.

Thanks for all you do and keep the pressure on high.

Downtown Indy said...

I heard today that there's a move afoot to get IUPUI into Conseco for their games but the Pacers are concerned about conflicting schedules.

Interesting thought about MSA. It COULD have been turned into a third venue for smaller crowds - as you say for IUPUI - but also for IHSAA or some minor league sports - thus never tieing up Conseco.

Seems odd to throw away a sunk-cost like that when it could have been another jewel in the downtown crown. We ARE after downtown development are we not?

We The People said...

I have personally called for the resignations of Bob Grand, Pat Early, and Mayor Greg Ballard. With the information brought before us, I believe there is a conflict of interest with Bob Grand and the Capital Improvement Board which I observe violates major ethical standards.

I also ask City County Councilman and Vice President Ryan Vaughn to recuse himself from any activity dealing with this issue as there is a clear conflict of interest in this matter. If a vote is cast by Mr. Vaughn, I will also call for his resignation.

I wish I did not have to give up time in my life to guard my city's treasury, but it appears that our public servants have given the robbers the combination.

Citizen Kane said...

The city will likely waive any penalty fees related to the Pacers lease if they tried to terminate it, just as they will likely let the Simons off the hook if they are indeed in violation of their subsidy.

Citizen Kane said...

The bigger issue is that the taxpayers should not be in the business of picking winners and losers and that is what happens when they subsidize specific businesses instead of providing infrastructure and public safety improvements that enhance the common good.

spooknp said...

This story is yet another example in a long line of examples, of why paying your "fair share" in taxes only makes you a sucker. Time to start acting like high ranking Democrats and cheat on those damn taxes. Why should you have to slave away at work, only to turn around and give your money to the government so it can be handed out to the connected elites to make them rich? I think people's attitudes are being adjusted. More and more people are being awaken at what this country has become. It hasn't been a capitalist country for many decades. This country is now closer than ever at being 100% socialist. The government owning the banks, some heavy manufacturing, etc..

I heard today that there's a move afoot to get IUPUI into Conseco for their games but the Pacers are concerned about conflicting schedules.This will only make us lose even more money. IUPUI can rarely get that many people to their games at their laughable gym over on campus. Unless there is some sort of special event, I would say they usually have around 200ish, maybe 300. Not only that, but the handful of students who attend the games would likely pass since the distance from the field house to campus would likely add close to a mile (each way) of their walk.

The power of the Simon family is strong. The old rumor was that the failing RCA tennis center was going to be torn down. Then, IU, the city, and private investors would build a small multi-purpose sports center. It would have a basketball arena for IUPUI which could be converted to a hockey arena for the former IHL Indianapolis Ice. Well, I heard that the Simons and the city screamed because it was discovered that costs to use these facilities are so much cheaper, that events like Disney on Ice usually book these smaller arenas because they make more money by paying the lower fees. In the end, this venue was never built.