Wednesday, April 01, 2009

Unveiling The Fraud Known As The CIB Bailout

Sen. Luke Kenley will meet with reporters later this afternoon and offer up details of a proposal to bail out the Capital Improvement Board of Managers. With a straight face, he will tell you that the everyone is contributing to the effort, including the Pacers and the Colts. That will be not be true, but he will have no qualms about saying it because that's the way the political affairs of government are conducted in this state.

Kenley will begin by saying that the Pacers have offered a concession. Instead of demanding $15 million a year more to cover the costs of operating Conseco Fieldhouse (from which they receive all of the revenues), they'll settle for $5 to $10 million. Remember, the original demand is based on a claim that the Pacers are losing money. They produced no proof of this and all published records heretofore have shown that the Pacers have, on balance, been making a profit in most years. The franchise, purchased for $11 million by the Simons in 1984, is now worth $300 million. The Pacers were never asked to produce audited financial statements which would prove their claims that they have been bleeding cash--as much as $200 million over the years.

Kenley will next tell you that Colts owner Jim Irsay is contributing up to $5 million of the revenues he currently pockets for non-game events held at Lucas Oil Stadium. We'll be told that a deal has been worked out to allow the IHSA to continue holding its football finals in the stadium at a cost the organization can afford, as opposed to the more than $100,000 in additional charges Irsay has socked them with over the cost of holding the finals in the RCA Dome. Any money Irsay puts on the table will be money the CIB should have already been getting for the public's contribution, but Kenley will assure you Irsay is making a real contribution to this effort.

Kenley will tell us that the state's alcohol tax will be raised, perhaps doubled, to generate revenues to help close the CIB's shortfall, which ranged anywhere from $30-$50 million during these discussions. A doubling of the tax would generate close to $40 million statewide, but Kenley will buy in support for the tax increase from other parts of the state by spreading that money around to projects in other counties. Health groups sought to increase the alcohol tax by 50% a few years ago to fund social programs, but the legislature turned the proposal down. An effort to double the tax in 2005 also failed. If the tax is doubled, alcohol taxes could increase from 12 to 24 cents/gal; the wine tax would increase 47 to 94 cents/gal; and the liquor tax would increase from $2.68/gal to $5.36/gal. On top of that increase, throw in a hike in the food and beverage tax in Marion County, along with the admissions tax. Who's keeping count?

Next, Kenley will tell us that the sports development area, which currently only encompasses Lucas Oil Stadium, will be expanded to include the new J.W. Marriott Hotel being developed by White Lodging. Taxpayers are kicking in close to $65 million for the hotel project. This change means any income taxes collected from the hotel will be diverted to pay operating costs for the Lucas Oil Stadium. The state is already diverting up to $16 million a year in state income tax revenues to pay the bonds on the stadium.

Kenley will claim the CIB has found millions in savings so the shortfall covered by the bailout won't be as big as originally anticipated. The claimed savings comes after the CIB inflated its 2009 budget by 20%, or about $20 million. Any way you shake it, the CIB's budget is still increasing at a rate substantially greater than the rate of inflation--in this case, about 10%.

The part of the debate missing is the real impetus behind this bailout. The CIB has been running deficits for years. The CIB obtained an emergency loan from the State of Indiana last year to cover a $17 million debt called in by bondholders. The CIB has been caught up in the interest rate spikes that occurred after the financial meltdown because it issued interest rate swap notes instead of long-term fixed bonds. No public explanation for why these short-sighted debt mechanisms were used has been disclosed to the public. The truth is that the CIB cobbled a financing scheme together to build Conseco Fieldhouse back in the late 1990s. The money wasn't their to cover the true costs. The CIB borrowed from Peter to pay Paul. Similarly, the CIB agreed to assume the entire operating and maintenance costs on the new Lucas Oil Stadium knowing full well that it didn't have the financial means to pay those costs.

In the end, nobody but the taxpaying public pays for poor financial planning by a CIB leadership that is hell-bent on putting as much of your money in the pockets of the billionaire sports team owners as possible no matter what the cost. No lessons are learned. Nothing changes. And this nightmarish Ground Hog Day will repeat itself once again.


Downtown Indy said...

While there's nothing palatable about the whole 'bailout the billionaires' deal, the most disgusting aspect is we don't even get the opportunity to speak out as citizens. I realize it would be, as in most other cases, just a formality and they'd do what they damn well please. But still, it would be the decent thing to do.

And on top of that, they do it with flagrant disregard for the state Constitution.

Patriot Paul said...

I'm being told the creative tax district will also overlap Circle Ctr.Mall and that the increased tax on the mall will go to the Simon's as a 'gift' from the State. Thoughts?

Gary R. Welsh said...

Paul, As it is, virtually all of the revenues generated from downtown are captured by a TIF district, if they aren't abated. Marion County government, the City of Indianapolis, the school districts and other taxing districts have been choked off from any economic benefit that these projects are said to return. We are reaching the point where nearly 100% of tax revenues generated in the mile square go to only economic development efforts within the mile square. We are already hamstrung because of the enormous amount of nonprofit, tax-exempt property here. This only further exacerbates the problem. When it's state tax dollars that are being diverted, it's just that much less money flowing into the general revenue fund to fund basic services of government.

Unknown said...

But hey, look at the shiny quarters every community in the state is going to receive for economic development! Those shiny quarters that are buying the support of legislators AND providing them political cover.

When you can pass along $500,000 to $700,000 to West Lafayette & Bloomington, even more to Fort Wayne, the legislators are going to swoon. Gotta love those sin taxes.....

Citizen Kane said...

Check out the Metropolitan Development Committee's response (or lack thereof) to a fairly passionate, articulate remonstrance to a tax abatement request on April Fool's day. Guess who the fools are? Tax abatement, without any proof, is supposed to be an economic development tool, however, it is just a game (with Site Selection Specialists and their vaunted secret negotiations being the Aces in the deck) in which we are played as fools (Yeah, we are the Jokers in their eyes).

The fact that no questions were asked (like what evidence is there that this project would not occur without the abatement).

Anyone challenging the status quo is basically ignored, because tax abatement is an accepted practice and everyone (participating in the game)knows it is the right thing to do because everyone in the games says it is so. So, every tax abatement is approved by the MDC after supposedly being throughly vetted by staff, without discussion, dissent and taxes.

The Sports Mafia is a stronger and more evil force that can not be beat without literally protesting in the streets everyday.