Tuesday, April 07, 2009

State Bailout Plan Leaves Many Unanswered Questions

Under a plan proposed by Sen. Luke Kenley and approved by the Senate Appropriations Committee last week in HB 1604, state taxpayers will shoulder as much of the tax burden to bail out the Capital Improvement Board as will Marion County taxpayers. The plan attempts to fill a $47 million annual budget gap the CIB claims it faces. HB 1604, however, will generate only $28.3 million for the CIB annually by FY 2012. Revenues will be millions short of that amount in the first two fiscal years. In FY 2010, it will generate $20.3 million and in FY 2011, it will generate $24.7 million. The plan assumes the CIB will get the Pacers and Colts to contribute an additional $5 million each, or a combined $10 million. Alleged CIB budget cuts will make up another $10 million. Assuming the current annual deficit is $47 million, it is very doubtful this proposal will be enough to close the budget gap.

The plan calls for state contributions in the form of a doubling of the state's alcohol tax. Of the $42 million raised statewide, $8 million will be allocated to the CIB; however, the tax in the first fiscal year will raise about $7.2 million for the CIB. The state plan also calls for the creation of a new professional sports development area that will encompass only the new J.W. Marriott Hotel complex. This will divert sales and income tax revenues generated from the hotel complex to the CIB. The PSDA will generate about $6 million annually by FY 2012; however, it will generate just $600,000 in FY 2010 and $3.2 million in FY 2011.

To raise another $14.1 million, the state plan relies on a series of tax increases the City-County Council will need to adopt by June 30, 2009. By increasing the admissions tax from 6% to 10%, an estimated $4.5 million will be generated annually. A quarter percent increase in the local food and beverage tax from 2% to 2.25% will generate about $5.1 million annually. Finally, a 1% increase in the hotel tax from 9% to 10% will generate $4.5 million annually. Initially, those revenues will fall at least $2 million short of the $14.1 million target. Also, these projections don't take into account the possibility that an extraordinarily high food and beverage tax in Marion County of 9.25% and a 17% hotel tax may negatively impact the City's hospitality industry.

There are other items in the state bailout legislation that have not been discussed. The local tax increases will not expire until 2041, or 32 years from their enactment. The new revenues will be deposited in a "special fund" of the CIB where they must be spent on the "usual and customary expenses that have a positive economic impact with respect to the capital improvements" that are operated by the CIB. The proposed state bailout plan would bar the CIB from using any of these revenues for "current or future obligations owed by the CIB." The CIB currently budgets about $34 million a year for debt service on bonds and other debts it owes.

What is clear from this analysis is that the proposed bailout plan will not be sufficient to meet an annual $47 million deficit, if that is indeed the actual amount of the CIB's deficit. At least $15 million of that deficit amount is being deliberately incurred by the CIB from an apparent decision to assume that much in annual operating costs for Conseco Fieldhouse that the Pacers are currently required to pay. The CIB has not produced proof that the Fieldhouse costs are $15 million a year for the Pacers. Further, the Pacers have not produced audited financial statements which would prove that the NBA franchise is truly losing money as it claims. The current lease with the Pacers does not legally obligate the CIB to pay these costs. The CIB is unilaterally renegotiating the lease, even before the Pacers sit down and renegotiate at the 10-year anniversary interval as provided under the current lease. If you subtract this part of the deficit, it shrinks to $32 million.

Another $20 million is said to be attributable to the increased cost of operating and maintaining Lucas Oil Stadium according to the CIB. Instead of giving away $15 million to the Pacers, the CIB should be asking for a $20 million concession from the Colts. Without this concession, the CIB could simply turn control of LOS back to the state, which owns the stadium under the auspices of a state stadium authority. That solves a $20 million funding problem for the CIB. The state is already collecting the regional taxes on food and beverages, hotels, car rentals and $16 million annually from the professional sports development authority for LOS and the convention center expansion. These revenues are generating more than the state authority currently needs to pay for the debt on bonds issued to construct LOS. To date, the state has collected $141.8 million from the regional taxes, or $7.6 million more than the taxes were projected to generate.

Let's also keep in mind that before the CIB announced it had a $47.3 million deficit, it approved a 20% increase in its current budget, or about $20 million. The CIB says it is shaving $10 million in expenses in the current budget to help close the deficit. If the CIB turns over LOS to the state, rejects the $15 million in additional costs requested by the Pacers, the CIB will have succeeded in closing $45 million of the $47.3 million it now claims it has. The CIB can close the balance of its deficit with an admissions tax increase, limiting the higher tax burden to users of the sports facilities. The state built the stadium. If it thinks Jim Irsay should pay nothing to operate and maintain LOS, then let it pay those costs. If the Pacers want to leave town if the CIB doesn't agree to pay them $15 million a year, then bid them fairwell.


Wilson46201 said...

Ch.8 reports:

Mayor Greg Ballard is in the spotlight as state lawmakers search for ways to bailout the Capital Improvement Board. Tuesday, the governor joined those looking to Ballard for guidance.

Governor Mitch Daniels (R) celebrated his 60th birthday with kindergartners and pre-schoolers, and then made it clear he'd like a present from Mayor Ballard. He says there needs to be a local consensus on how to raise operating funds for Conseco Fieldhouse and Lucas Oil Stadium.

It's increasingly clear that there is not enough support in the General Assembly for a proposed hike in the state alcohol tax. And there won't be support for any tax hike unless Mayor Ballard asks for one.

"May sound odd to people in Indianapolis, but this is a local issue. It's a big one, but it's a local issue. We don't ordinarily tell people of a given community how they should organize their affairs," said Governor Daniels.

State Senator Luke Kenley (R) of Noblesville, meantime, said action on a CIB bailout plan will likely wait until next week.

"We can only wait so long, and they need to figure what it is they think is a reasonable solution that doesn't involve a lot of state expenditures on their behalf," said Kenley.

Mayor Ballard testified last week on a $47 million solution to the CIB problem but stopped short of endorsing the tax hikes in it. Senator Kenley says that getting anyone to endorse a solution is like pulling teeth. He too, wants to hear from the mayor.

"He plans to come and see me and give us a menu of things that he thinks may be a more workable solution. I look forward to that," said Kenley.

Jon said...

Apologies to realtors but the CIB projects are much like this old realtor joke; My realtor sold me a two story house- one story before the sale, another after.
And now for the next sale...