Thursday, April 30, 2009

CIB Out Of Business As Of September 1?

Not surprisingly, the CIB has called an emergency board meeting for tomorrow morning at 11:00 a.m. as a consequence of the General Assembly adjourning last night without approving the $47 million bailout proposal for the CIB. In recent months, we've heard the CIB's President Bob Grand suggest that Lucas Oil Stadium might be closed if the rescue plan failed. Last week, CIB Treasurer Ann Lathrop told a legislative committee that the CIB had a contingency plan to start cancelling conventions if the legislature failed to approve the bailout plan. Expect the "sky is falling" dramatics to pick up even more at tomorrow morning's emergency meeting. I'm picking up indications that the CIB plans to announce that it will no longer be able to conduct business as of September 1, 2009 because of its budget shortfall. The CIB faces a $27 million debt payment in September. The CIB rushed to repay a $17 million debt to the State of Indiana earlier this month, which came due in June. It could have asked the State to defer the payment but chose not to in order to put further pressure on the state legislature to win approval of its bailout plan, which calls for a series of higher taxes and the capturing of additional state revenues from an expanded professional sports development area downtown. Governor Daniels may wait until June to call the legislature back into a special session to approve a 2-year state budget. CIB leaders are likely to renew efforts to get a bailout plan approved during the special session as part of the state budget.

Wednesday, April 29, 2009

Bosma Decries Death Of CIB Bailout

This will not go down as one of House Republican Leader Brian Bosma's finer moments in the legislature. Just moments ago, he chastised House leaders for allowing a $47 million bailout proposal for the CIB to die. House leaders removed the Allen Co. CIB language and other local government capital-related projects spread around the state from HB 1604 and inserted them into another House bill without the bailout language for Marion County's CIB. Bosma criticized the decision not to include a bailout for the CIB, suggesting it would result in the loss of thousands of jobs. That's right. He thinks the failure of lawmakers to give Marion County the right to enact several new tax increases and capture even more state revenues to finance our mismanaged CIB will lead to catastrophic economic consequences to Indianapolis. That's the kind of talk I became accustomed to hearing Chicago pols spew every year when I worked for the Illinois legislature if state lawmakers didn't produce a financial fix for their schools, their transit system, their airports or whatever financial crisis their own corrupt mismanagement could produce. The fix was always higher taxes and no accountability. Perhaps Mayor Greg Ballard and the GOP-controlled council will now employ Republican principles to fix the CIB instead of the tax and spend failing ways of the past. Rep. Bosma should rededicate himself to learning how a true Republican would handle this CIB mess. Let's now get to work on permanently fixing the CIB so this never happens again, and it is forced to live within its approved budgets, not running deficits year after year as it has done for the past decade. This process should begin with Mayor Ballard calling for the resignation of the CIB's leaders and their replacement with persons committed to finding a solution without demanding higher taxes.

UPDATE: The House just voted down approval of a two-year state budget. The General Assembly will finish the session without completing its only constitutional duty. A special session will likely be called by Governor Daniels early next week to work out a budget deal. That leaves yet another opening for the forces pushing a CIB bailout to push for its inclusion in the final state budget. This fight isn't over yet.

CIB Bailout May Be Logrolled In State Budget

I wrote on this blog on February 16, 2009 about a possible plan to stick a bailout for the CIB in the state budget bill, thereby allowing lawmakers to avoid a final up or down vote on the issue alone. I based that observation on an e-mail I received from my own state legislator, Rep. John Day, saying that he didn't support the bailout but that he might have to vote for it if it becomes part of the state budget. Well, today WTHR's Kevin Rader says that might well happen as lawmakers scramble to finish up their work by midnight tonight. "The word is that CIB could very well end up in the budget," writes Rader on his blog. If that happens, it once again confirms that Indiana is the absolute worst legislature in the country.

Vigo County Commissioner Pleads Guilty To Meth Distribution

Vigo County Commissioner David Decker has pleaded guilty to federal drug charges that he distributed methamphetamine according to the Terre Haute Tribune-Star. Decker, a Democrat, has agreed to resign his county office as part of his plea agreement. Under the terms of the plea agreement, Decker will serve ten months' time in a federal prison for a felony offense, which may be substituted with five months of supervised home detention after he serves at least five months in prison. A copy of the plea agreement can be read here.

UPDATE: WTHI-TV has more here. Their reporting indicates that Decker's bust stems from a federal drug bust last December. The report says:

"We learned about other people involved in the drug trafficking organization. David Decker was one of those people. We were able to document through informant testimony and cellular telephone records that he'd participated in a drug delivery on November 8," Assistant U.S. Attorney Brad Blackington said.

This case was investigated by the FBI, Bureau of Alcohol, Tobacco, and Firearms, Vigo County Drug Task Force, the Vincennes Police Department and Indiana State Police.Officials said the deal went down in November 2008, less than a week after his re-election to the county office.

The agreement calls for Decker to serve 10 months in prison and he will have to resign his position as a county commissioner. The plea still needs to be signed off on by a judge. The court has the option to accept of reject the agreement.

Milan Officials Seize Assets Of Firm Linked To Indy's Derivative Meltdown

Indianapolis Water Company officials are paying a penalty of at least $85 million as a consequence of its decision to issue a form of derivatives, interest rate swap notes, in lieu of long-term fixed rate bonds. The Indianapolis Bond Bank obtained insurance from Depfa Bank as part of those transactions. In Milan, government officials have seized $620 million in assets belonging to several major banks, including Depfa Bank, amid a probe into alleged fraud linked to the sale of derivatives. Bloomberg News reports:

The police froze the banks’ stakes in Italian companies, real estate assets and accounts, the financial police said in a statement today. The assets seized yesterday also include those of an ex-municipality official and a consultant, the police said.

The City of Milan is suing the four banks after it lost money on derivatives it bought from the lenders in 2005. The securities swapped a fixed rate of interest on 1.7 billion euros of bonds for a variable rate that was losing the city 298 million euros as of June. Milan is among about 600 Italian municipalities that took out 1,000 derivatives contracts worth 35.5 billion euros in all, the Treasury said.

“Milan is an important case because it can be used as an example by others,” said Alfonso Scarano, who is heading a study into the trades by AIAF, a group representing Italian financial analysts. “This is a unique time for borrowers to shed light on their potential losses and renegotiate contracts” to take advantage of interest rates that have fallen to record lows. AIAF will next week testify before the Italian Senate’s inquiry into the cities’ use of derivatives contracts.

Officials at all four banks declined to comment. In January, JPMorgan filed a lawsuit against the city in London. The bank is seeking to have dispute heard in the U.K., according to two people familiar with the claims . . .

The banks reaped about 100 million euros in fees from the transactions, Milan’s financial police said today. Public officials, seeking to cut the cost of their debt and help fund their budgets, turned to the banks to refinance borrowings from the state-owned lender Cassa Depositi e Prestiti.

The 30-year bond carried annual interest of 4.019 percent. With the derivatives, the city swapped the fixed interest rate for a floating rate set at 12-month Euribor. Milan also agreed to repay the principal by annual payments instead of at maturity, according to the city’s report . . .

The banks misled municipal officials on the advantages of buying the derivatives, including the impact of the fees they charged on the contracts, the financial police have said. The banks made three times more money from the cap than Milan did from the floor, according to the city’s report.

Local governments often entered into derivative contracts without soliciting bids from competing buyers. In 2007, Milan also sold a credit-default swap, exposing itself to the risk that the Republic of Italy might default, the document shows.

The Milan case is among lawsuits filed by local governments from Germany to the U.S. amid allegations of mis-selling and fraud. Italy’s Senate is leading a review of the use of derivatives among local administrations.

Anyone planning any investigations here? Or will we just make taxpayers foot the bill as usual?

Senate District 30 Roundup

The race to succeed Sen. Teresa Lubbers is coming down to three primary contenders. City-County Councilor Ryan Vaughn is backed by party leaders. Former City-County Councilor Scott Schneider, who is a thorn in the side to these same party leaders, is mounting a strong challenge for the seat. His family's long-standing ties in the Washington Township should help him. Also, former State Rep. John Ruckelhaus is making a serious run to win the seat. Ruckelhaus lost a contested GOP primary to Lubbers back in the 1990s despite being the party's slated candidate. Ruckelhaus is a lobbyist for the cable TV industry. Vaughn, also a lobbyist at Barnes & Thornburg, has told party folks he will leave his job at Barnes & Thornburg if he is appointed to Lubbers seat. The consensus building is that Schneider will become the candidate of the disenfranchised outsiders who want to shake up the Marion County GOP. Whoever is chosen for the seat is likely to hold it for many years to come. The new senator will not have to face voters until 2012. A new map likely drawn by a Republican Senate majority will carve out a district highly favorable to the seat holder, making a primary contest the only viable option for ousting anyone appointed to this seat. A party caucus to fill the seat will likely occur in early June.

Tuesday, April 28, 2009

Why Don Welsh Left Seattle

During a presentation by the ICVA to the City-County Council's Economic Development Committee recently, Councilor Robert Lutz asked ICVA Executive Director Don Welsh to explain why he left a similar job in Seattle to move to Indianapolis. Welsh responded that he was drawn to the City of Indianapolis because of the financial commitment it had made to developing its convention business with the construction of Lucas Oil Stadium, the expansion of the convention center and the construction of a world-class airport. While Welsh didn't mention what had just transpired in Seattle when he departed his old job for his new, it is equally instructive in explaining why he left. Welsh mentioned in his answer that Jim Morris is one of the community leaders who convinced him to take the job here. Keep in mind that Morris is the former Indianapolis Water Company executive who made off with a $6 million golden parachute payment after its parent company, NiSource, convinced city leaders to purchase it for at least twice its actual value. Morris has now been hired as high-paid executive of the Indiana Pacers, primarily to convince the CIB that it should pick up $15 million a year in costs supposedly being paid by the Simons to operate Conseco Fieldhouse.

In 2006, Howard Schultz of Starbucks fame, agreed to sell the NBA Seattle SuperSonics team to a group of Oklahoma City investors headed by Clayton Bennett. Schultz claimed that Bennett assured him the new owners planned to keep the team in Seattle. The deal actually required the new owners to commit to Seattle for only a year while the new owners attempted to get the City of Seattle to do what Schultz couldn't convince the city to do--spend $300 million to renovate KeyArena. Seattle's lease, however, obligated the team to stay until at least 2010. Schultz' ownership team claimed they had been losing $60 million a year on the franchise because it had to share suite and concession revenue with the city according to the Seattle Times. Local activists in Seattle successfully blocked attempts back by folks like Don Welsh to spend hundreds of million renovating KeyArena. When Bennett met with Welsh's board to explain what it would take to keep the team there, he backed his efforts. The Seattle Times wrote in 2007, "Don Welsh, president of the convention bureau, called Wednesday's meeting with Bennett a 'healthy exchange' and said business leaders hold out hope for a deal that could keep the Sonics and Storm here." "I hope we as a community exhaust every political and private opportunity to keep them in the region as long as it makes viable economic sense," Welsh said.

Unlike Indiana, Welsh couldn't count on pawns like Gov. Mitch Daniels, Luke Kenley and Bill Crawford to carry his water in the Washington legislature. Their counterparts in Washington refused to step in and provide the money for an expanded arena and the NBA team headed to Oklahoma City, after briefly considering opportunities in Kansas City and Las Vegas.

Under a deal brokered with the City in its lease dispute with the Seattle SuperSonics' owners, Bennett agreed to pay Seattle $30 million if the City fails to find a new team by 2013, and if the City failed to obtain funding for the $300 million in renovations to KeyArena this year. Well, guess what? The Washington legislature just concluded its legislative session without funding the renovations for the arena. The similarities in the Washington legislation that would have funded the $300 million KeyArena renovation to the proposed bailout of our own CIB are striking. The legislation attempted to remove a sunset date for several taxes levied in King County, Washington state's largest county where Seattle is located and established a "special purpose fund" into which those revenues would be deposited. This included a 2% hotel tax, a 1% tax on car rentals and a 0.5% food and beverage tax. Some of these taxes are scheduled to sunset when bond debt for the construction of Seattle's baseball stadium has been paid off. Heard that one before? KeyArena proponents wanted to extend the life of these taxes and deposit the money into the "special purpose fund" to pay to renovate KeyArena with the hope of luring a new NBA team to town. To sweeten the pot, the legislation said funds deposited into the account could be used to fund the arts, promote tourism, community development and even low-income housing.

Against that backdrop, Welsh's reason for leaving Seattle to come to Indianapolis makes a lot more sense. Little did Welsh know what he was stepping into when he accepted his new job. He believed that he had arrived in a community that was sports happy to such an extreme that people would sell the shirt off their own backs to support his endeavors here. Because our own legislature has another 24 hours to go before it concludes its work, it is too soon to say that Welsh had us pegged incorrectly. Regardless of what the legislature decides, you couldn't watch Welsh's performance before our council's Economic Development Committee without wanting to throw up. Welsh really has the powerpoint razzle dazzle 'em thing going on. There were plenty of holes that could be poked in his presentation, but as you might have expected, there wasn't a sole on the committee capable of doing that.

Despite identifying the fact that close to 80% of the ICVA's funding comes from taxpayers, Councilor Lutz thought it operated on revenues it generated from fees. Although it was clear to me that I know a hell of a lot more about these matters than Councilor Lutz, he attempted to convince people watching him on WCTY that they should stop listening to the misconceptions being spread in the community and listen to him. Councilor Jeff Cardwell, who chairs the committee, didn't even attempt to hide his "in the tank" attitude. He said is own business, a Do It Best franchise, has a great working relationship with the convention center and thinks they're doing a bang up job. My councilor, Doris Minton-McNeil, poorly articulated a salient question on Lucas Oil Stadium. How much does Jim Irsay get? Despite the tortured manner in which she posed the question, I understood what she was asking. Unfortunately, Welsh and his CFO pretended not to understand. At one point, the CFO insisted all of the LOS revenues generated from convention activity flow into the CIB's coffers and nobody on the committee attempted to correct the record. In actuality, Irsay's Colts franchise pockets $3.5 million a year, which is supposed to represent 50% of the revenues generated from non-game events. His franchise also pockets 100% of the concessions the CIB is obligated to operate at LOS game-related events. Let's not even get into the hundreds of millions in advertising rights the Colts pocket from LOS.

I'm not sure how this thing will shake out in the end. If we succeed in blocking this ill-conceived bailout plan for the grossly mismanaged CIB, it will be but for the grace of God. I have so little confidence in our elected leaders. Clearly, all of the key decision-makers have relations with the key players that clouds their judgment on these issues. I feel like I'm beating my head against the wall to get any of these people to understand the facts and not just the bullshit p.r. crap people like Grand, Early, Welsh and Mayor Ballard have been feeding them. Lutz reasserted the 66,000 phony job claim, suggesting that all of those jobs will disappear if we don't bail out the CIB. Welsh fed into that argument, responding to a question from Lutz on the fallout if the bailout fails. Welsh, not surprisingly, predicted the fallout would be "catastrophic." Just like Seattle, right?

Indiana Officials Confirm Swine Flu Case

The Indiana Department of Health is confirming Indiana's first swine flu case. The Department is conducting a live press conference this hour. WRTV reports that the confirmed case is from Northern Indiana. The case involves a young adult who has not traveled to Mexico recently. The "student" attends Notre Dame in South Bend and has recovered according to the Star.

What if there is a flu pandemic? The State Department of Health has a plan it adopted in 2006. That plan assumes that up to 25% of the population will be afflicted with the virulent flu strain, more than 20,000 of whom will require hospitalization and more than 4,000 of those cases will end in death.

Grand: Bankruptcy Should Not Be Used As A Threat By CIB

Last month, CIB President Bob Grand threatened to close Lucas Oil Stadium if the legislature didn't approve a $48 million a year bailout for the CIB. Last week, CIB Treasurer Ann Dillon told a legislative committee considering the bailout that the CIB would have to begin cancelling conventions at the Indiana Convention Center if a bailout deal is not approved. And for the past several months, we have been bombarded with "sky is falling" rhetoric from the entire CIB leadership, including Mayor Greg Ballard, if a bailout plan is not approved. Grand, however, draws the line at a suggestion of bankruptcy. "CIB President Bob Grand said he hasn't spent time considering whether bankruptcy would allow the agency to renegotiate with the Colts because he did not want to use it as a threat," the Star's Brendan O'Shaughnessy reports. "There are too many unanswered questions right now for me to shoot from the hip," Grand said.

Now that Jimmy Irsay has spoken, Mayor Ballard has changed his tune on asking the Colts to contribute money to help bail out the CIB. O'Shaughnessy writes, "Ballard last week said he has the same concerns as Irsay about reopening the Colts' lease. Ballard said the Colts should not be "demonized" for holding to their contract with the city." "I'm worried about the precedent it sets," Ballard said. "It could send chills down the spine of every business that does deals with the city." O'Shaughnessy adds, "Rather than try to reopen its 30-year contract with the Indianapolis Colts, the city might ask the team to donate money to area arts and culture groups now supported by the struggling Capital Improvement Board."

What is really sending a chill down the spines of taxpayers is the fact that not a single politician in this debate is standing up and fighting for the taxpayers' interest, save Libertarian Indianapolis City-County Councilor Ed Coleman, who is no longer a Republican because members of his own party opposed his efforts to get to the bottom of the CIB mess.

Let me repeat, opposing tax increases to bail out the CIB but looking for alternative ways of sending the same amount of money to the mismanaged entity is not an acceptable solution. The politicians who are advocating this route want their cake and eat it too. The CIB can't afford the lease agreement with the State of Indiana for LOS. The answer is pretty simple. Give the stadium back. Local politicians oppose this option because they fear control over the distribution of all of those free tickets to the games, which are controlled by the CIB and the Mayor, will shift to Governor Daniels.

Disappointingly, local news media reports have ignored the free ticket scam that allows politicians to be bought off using your tax dollars. Let's see who is getting free tickets and using suites controlled by the City and the CIB at LOS at Colts games. Let's learn who is footing the bill for that free entertainment. Let's find out whether politicians are reporting all of those free gifts on their statements of economic interest. You would be surprised how some politicians' thinking changes once they are doled out free tickets to Colts games. The CIB learned this early on and bilked it for all its worth.

See Star business columnist John Ketzenberger's latest pitch for the City's downtown elite here. In case you missed it, they're setting up Mayor Ballard to take the fall if their CIB bailout fraud fails.

Monday, April 27, 2009

Indy Taxpayers Hit For $15 Million In Overtime Pay

As the City of Indianapolis' Capital Improvement Board seeks a $48 million a year bailout through higher taxes, a new report uncovers out-of-control overtime pay by the City, which paid some police officers more than double their annual salary due to overtime wages last year. City workers earned more than $15 million last year in 2008 for overtime pay according to a Fox 59 Investigates report tonight. Some police officers, with their overtime pay, are earning more than IMPD's Chief Michael Spears and Mayor Greg Ballard.

The Fox59 Investigates report found that overtime pay had climbed dramatically over the past three years, growing nearly 50% from $10 million in 2006 to $15 million in 2008. Two IMPD traffic officers stand out. Officer John Haggard earned $75,000 in overtime pay last year. Adding overtime to his $55,000 annual pay, Haggard earned $130,000 last year. Another IMPD traffic officer, James Goddard, earned $63,000 in overtime pay on top of his $55,000 regular pay, allowing him to earn $118,000. Both officers earned well in excess of Chief Spears' $107,000 annual pay and Mayor Ballard's $95,000 annual pay.

According to the report, it's not just police officers racking up the overtime pay. Other city workers earned between $18,000 and $40,000 in overtime pay. In the case of police officers, Deputy Director of Operations John Conley attributed the problem with Goddard and Haggard to a federally-funded grant program that encourages the City to issue more tickets for DUIs, seat belt violations and aggressive driving. The two officers together issued more than 15,000 tickets last year. Conley said new rules have been implemented to limit the amount of overtime pay a city police officer can accrue in a pay period to no more than 20 hours. He also said more officers are being trained to do traffic grant work. The department is also barring police officers from collecting overtime pay while waiting for repairs to their cars.

I would be curious to see a list of city workers, other than police officers, who collected overtime pay and the amount of overtime pay they earned. It seems like this should be an area of government where cost controls can effectively keep costs down. Police would argue that the overtime pay is offset by the additional revenues the officers generated from writing so many tickets. At the same time, those arrests help clog the court system and drive up the costs of operating our courts.

UPDATE: Fox 59 has uploaded a database of overtime pay for city workers, which you can access by clicking here for county employees and here for city employees.

Sunday, April 26, 2009

Irsay Thumbs His Nose At CIB Because He Can

Jimmy Irsay is no fool. He knows that all of those hundreds of thousands of dollars in campaign contributions he has passed out to Indiana politicians like Luke Kenley and Mayor Greg Ballard have paid off. When he says jump, they ask, "How high?" More importantly, Irsay has been assured by his attorneys that the lease agreement the CIB signed with him is so blatantly one-sided in his favor that the CIB has absolutely no leverage to make him contribute more to cover the costs of Lucas Oil Stadium. With that backdrop, Irsay can say the following to an Indianapolis Star reporter when asked about contributing to the CIB bailout:

“When it comes down to it, it’s very frustrating,” Irsay said. “What you’re saying is, ‘Hey, we worked on this thing. Our word is good. We stand behind it.’ That’s what a partnership is about. It would be very hard to recruit businesses here if they thought as soon as they worked on a lengthy, comprehensive deal for 25 years or more that four or five months later people would be talking about … renegotiating.

“What’s going to happen? A year from now it’s like, ‘OK, it’s not good enough. What we agreed to in ’09 in May is not good enough. We need to talk to you again.’ ”

"People don’t want to look at the facts,” Irsay said. “Look, (former Mayor) Bart Peterson and (former CIB head) Fred Glass came to me and said we need a new stadium to go with the convention center. Will you guys take this risk? We did. It was all on our risk. If someone can show me someone else who put a hundred million into a building and doesn’t own it … that’s what I don’t understand.”

Did Jimmy Irsay put a $100 million of his inherited money into LOS? No, unless you count $50 million the CIB paid as a break-up fee to him for terminating the lease on the RCA Dome to enter into a new one for LOS, or the $50 million the NFL kicked in for the new stadium. Is Jimmy Irsay not telling the truth about wanting a new stadium. You bet. Back in the 1990s, Irsay had already been making waves to CIB insiders that the RCA Dome just didn't cut it. He wanted an open air stadium. Mayor Goldsmith had to explain to Irsay that he couldn't sell the public on a new stadium when the RCA Dome was barely more than a decade old. Goldsmith agreed to renegotiate the lease with Irsay in 1998. The deal gave Irsay's Colts $9 million a year in Dome-related revenues and required the CIB to spend about $20 million in improvements to the Dome. The Colts were required to stay in the Dome through 2014; however, beginning in 2007, the team could terminate the lease if it paid $11 million a year to the CIB to break the lease.

Soon after the 1998 lease agreement, the CIB began buying property at the site where LOS now sits. In 2002, Bart Peterson would deny that the land was being acquired to build a new stadium, but we learned that was a big lie. In fact, he began negotiating a new stadium deal as soon as word leaked out that Irsay might move the team to L.A. In 2004, the Indianapolis Star discovered through a public records request that design plans for a new stadium (sans retractable roof) had quietly been prepared at the CIB's request. When Irsay realized what a generous deal Mayor Peterson and then-CIB President Fred Glass were willing to negotiate with him, he added the demand for a retractable roof and the two dutifully complied, adding at least another $75 million to the stadium's cost.

Irsay now suggests that Peterson and Glass wanted a new stadium simply as an excuse for expanding the convention center. I'm not buying that. The two knew that convention center expansion needed to happen to generate more revenues to offset the added cost of a new stadium. They knew that conventions are what drive the hospitality taxes like the food and beverage tax and hotel taxes that support the CIB, not the stadium. If the City had a new and bigger stadium, it would need that many more conventions to provide added revenues to support the CIB. The problem is that the CIB has been operating on borrowed money for many years. When people use the term Ponzi scheme to describe what has been going on with the CIB's finances, they are not far off the mark. A series of carefully crafted financing schemes has provided the CIB with sufficient funds to operate, albeit courtesy of borrowed funds. The chickens are now coming home to roost and the CIB's back is against the wall.

Instead of doing a top-down investigation of the CIB's finances, Mayor Greg Ballard, who simply inherited the mess from the Peterson administration, is insisting on a series of new tax increases to not only help shore up the CIB's finances but provide more taxpayer-paid subsidies to the Indiana Pacers, who for the record, say they've never asked the CIB for a dime. Ballard has completely dismissed calls for an investigation, saying he doesn't want to lay blame or look backwards. That doesn't cut it for the taxpaying public. The taxpayers have a right to know why it costs four times as much to operate the CIB as it does the City's parks. When we can't even find enough money in the City's budget to open up all of the public pools at city parks, which have already been operating on a shortened season to cut costs, we can't ask taxpayers to give more money to the CIB.

Curiously, some City-County Councilors are publicly saying they won't vote for new tax increases for the CIB; however, they are wanting to give an equal amount of money that would otherwise be raised from new taxes out of state revenues by expanding the professional sports development area to include the new J.W. Marriott convention hotel complex and Circle Centre Mall. These councilors are acting as recklessly as Mayor Ballard. Either plan means taxpayers are rewarding the mismanaged CIB, which has been operating in virtual darkness for too many years. I don't care whether we're talking about state revenues or new locally-raised revenues, the notion that the CIB should receive more taxpayer dollars is simply wrong.

As I've repeatedly explained, the CIB does not own LOS. If it doesn't have the financial means to operate the stadium within its existing budget, which it knew when it signed the lease with the Colts, then it should turn the stadium back over to its rightful owner, the State of Indiana. Gov. Mitch Daniels and state lawmakers like Sen. Luke Kenley, who crafted the stadium construction deal, knew the CIB did not have sufficient revenues to operate LOS once it was constructed. Yet these same state leaders went ahead with the plan anyway. That plan required the state to kick in $16 million a year in state income tax revenues and tens of millions more from food and beverage taxes levied on the neighboring counties and Marion County. Let's see how efficiently the state can run the stadium compared to the CIB. And remember, the Colts claimed in its letter to fans this week that the CIB exaggerated the true costs of running LOS. That's even more reason to be skeptical when CIB leaders say they need another $20 million just to operate LOS. As for the Pacers, there is no contractual obligation to pay the Pacers another $15 million to operate Conseco Fieldhouse. The CIB has plenty of leverage with the Pacers should they decide to terminate the lease, including financial penalties ranging from $44 million to well in excess of a $100 million. The fact that the CIB decided on its own to offer this up to the Pacers even before a demand had been made from them is proof of the complete incompetence of the CIB leadership, all of whom should have been asked to resign yesterday.

Friday, April 24, 2009

Don't Confuse Ballard With The Facts On CIB

I caught a report by WTHR's Kevin Rader this evening on the conference committee report hearing on the CIB bailout this afternoon at which Mayor Greg Ballard testified. Ballard seemed to be telling the committee that if they approved a bunch of tax increase options for the City, he would figure out a way to get it done with the City-County Council. Rep. Trent Van Haaften, according to Rader, asked Ballard if he had investigated the CIB to figure out what had gone wrong to prevent the same problem from occurring in the future. Ballard essentially told Van Haaften that he wouldn't look at the past and that he was only looking to the future. "This is about the future of Indianapolis' convention business," Ballard said. Rader said Van Haaften reacted by comparing Ballard's answer to Mark McGwire's when he was asked about his use of steroids as a major league baseball player. "I'm not here to talk about the past," McGwire said. This has been Ballard's attitude towards everything, including the CIB, the water company, the airport authority, etc. He refuses to authorize any investigations of questionable transactions that occurred under the Peterson administration that have left this city on the brink of bankruptcy. His answer to everything is not to lay blame. Don't investigate what happened. Just raise taxes and spend more money and hope the problems go away. If that was the solution the people who elected him wanted on these issues, they would have simply voted to re-elect Bart Peterson.

UPDATE: I just caught Norm Cox's story from WRTV on yesterday's conference committee meeting on the CIB bailout. Cox ran video footage of CIB Treasurer Ann Lathrop testifying before the committee and claiming that the CIB would soon be forced to contact convention organizers and cancelling scheduled conventions because of the CIB's financial woes, suggesting that the Indiana Convention Center might have to be closed due to lack of funds. A few weeks back, CIB President Bob Grand made a similar threat to close down Lucas Oil Stadium, a claim he backed off on when he testified before the Municipal Corporations Committee. Lathrop's scare tactics are completely out of line. How she can sleep at night making such an erroneous claim is beyond me. Lathrop, by the way, earns a living working for Crowe Horwath, the CPA firm which relies on government contracts as part of its local operations. The firm provides financial advice to the Indianapolis Water Company, among other government contracts.

Thursday, April 23, 2009

Westfield Wants To Be Like Indy: Sports Happy And Broke

Reading this news today out of Westfield, the only word that came to mind was "insanity." The IBJ's Cory Schouten explains the City's $1.5 billion plan to become the "Family Sports Capital of America":

The mayor of Westfield announced plans this morning to build a $60 million youth sports complex with a 4,000-seat multipurpose outdoor stadium, indoor sports facilities, and fields for baseball, soccer, softball and lacrosse.

The sports facilities would anchor a 1,500-acre development by locally based Estridge Co. along Towne Road between 146th and 161st streets. The project, called Symphony, already features the Wood Wind Golf Club.

All told, the sports component and clusters of retail, hotels and residential development around it would require a public and private investment of $1.5 billion, Mayor Andy Cook said . . .

“This is a public-private venture which will clearly put Westfield on the map,” Cook said in a statement. “We are in the process of working on creative funding mechanisms as we truly believe that we are bringing forth a tourism component benefitting the entire state.”

The mayor is lobbying state officials to create a tax-increment finance district so the city can collect tax revenue to pay for the public portion of the project. The city also is working with the Hamilton County Convention and Visitor’s Bureau to create a Family Sports Advisory Commission that would coordinate the development.

What is it about people in Indiana who think that the whole world revolves around sports? Our major industries are shutting down, wages are falling, our schools are deteriorating and all our leaders can think about is building bigger and better sports facilities when we can't even afford the ones we've already built. I saw Mayor Andy Cook being interviewed by WTHR. He said there were only two other places in the country with similar sports-themed communites like the one he is planning for Westfield and one of them was Disney World. Why doesn't he just rename his city "Fantasy Island" and maybe all of his dreams will come true.

Colts Fire Away At Pacers And CIB

The Indianapolis Colts' organization released a sharply-worded letter to Colts fans today. It defended its contributions to Lucas Oil Stadium and the community and took aim at the CIB and the Indiana Pacers. The letter reads, in part:

[O]ur understanding of the CIB's history is that the CIB's shortfall is neither new nor unexpected. In fact, only a relatively small portion of the predicted shortfall can be directly attributed to the increase in actual maintenance and operations expense required by Lucas Oil Stadium. What is particularly puzzling is that the shortfall appears to have only become a crisis when the CIB concluded it might be obligated to assume all the operating costs of Conseco Fieldhouse to avoid an early termination of the Pacers' lease.

Wow. That's quite a mouthful. Essentially, the Colts are telling us that we have every reason to question the true motivation behind the bailout request and the numbers being tossed around by the CIB. As has been pointed out before, when the CIB originally asked the legislature for money to cover the operating expenses before the original construction plan had been approved, the CIB said it had no idea what these costs were going to be. Later, the number $5 million got tossed out. The number later increased to $10 million. Now we're told it's $20 million. It seems to me if the Colts organization is questioning that amount as the tenant, then we as taxpayers should be questioning it as well.

There are other parts of the Colts' letter that are hard to swallow. "The Colts never asked for a new stadium," the letter reads. "In 2004, the City of Indianapolis approached the Colts about the possibility of a new stadium, not the other way around." "The City's need for an expanded convention center and desire to accommodate the NCAA for future Final Fours prompted its exploration of a facility to replace the RCA Dome." The letter insists that at no point did the "Colts threaten to leave Indianapolis or otherwise hold the city hostage." Many would dispute that claim. The public certainly has been led to believe that building the new stadium was necessary to keep the Colts from leaving. We sure wasted a whole lot of money on it--$750 million-- if the only reason for building it was an excuse to expand the convention center.

The Colts' also defend their 30-year lease agreement with the CIB on the new stadium, saying it leaves "no option to renegotiate, regardless of any financial downturns that might arise." "In essence, the risk of financial success in a small market has been shifted from the city solely to the Colts." Excuse me if it doesn't seem that way when we're being asked to pay another $48 million in annual expenses for the CIB on top of the more than $100 million the sports teams and convention center are currently costing us. The Colts boast that the stadium "has successfully hosted many events having nothing whatsoever to do with professional football and many more are already scheduled for years to come." The problem is that the CIB isn't sharing in those revenues sufficient to offset the benefit of these non-game events.

This may be surprising as well. "Jim Irsay has personally met with Senator Luke Kenley and Mayor Greg Ballard to discuss these matters," the letter says. "Our representatives have also been frank, open, and continuing communication with the CIB and the financial leaders of the state legislature since this issue began to emerge early last winter." That doesn't exactly jive with what the CIB leaders have been saying publicly, but who knows who is telling the truth. The bottom line is that the taxpayers have all the more reason to view this bailout plan touted by the CIB with suspicion.

Cafe Zuppa Coming To Chamber Of Commerce Building

Downtown office workers in my part of town have been sorely missing Gabriel's Cafeteria in the Chamber of Commerce Building at 320 N. Meridian since it closed down unexpectedly at the end of last year, leaving behind its newly-renovated digs. The building's owner, Bo Elder, announces that Cafe Zuppa will be opening for business at the same location in late May. The new cafe owners plan to serve breakfast and lunch. Fare will include pastries, soups, sandwiches, salads and miniature deserts.

Give The Stadium Back

It's a no-brainer. City-County Council leaders have surveyed their caucuses and figured out that there aren't enough members in either caucus who will support a bail out of the CIB with higher taxes. Instead of a tax increase on Marion County residents, they want the legislature to approve a plan that requires the state to shoulder the cost of bailing out the CIB. Who owns Lucas Oil Stadium? The State of Indiana? Who doesn't have the money to operate and maintain the stadium it leases? The CIB. Answer? Give the stadium back. No, that makes too much sense. The Star's Brendan O'Shaughnessy reports on the leaders' plan:

Leaders in both parties said this week they do not think there is enough support on the council to pass the tax increases on alcohol, hotels, stadium tickets and car rentals called for in Mayor Greg Ballard's plan. State lawmakers are now considering whether to pass the enabling legislation so the council can act.

Eight of 13 council Democrats and one Libertarian reached by The Indianapolis Star said they would not support any tax increase to bail out the Capital Improvement Board, which faces a $47 million deficit. Nine of 15 Republicans responded; two said they opposed the tax increases, and seven said they could not support the mayor's plan as currently structured, especially the doubling of alcohol taxes in Marion County.

Council President Bob Cockrum and Democratic Minority Leader Joanne Sanders began working together this week to lobby state lawmakers in favor of a plan that would rely on more state tax revenues. Cockrum's plan, on which he is working with Sanders, would generate $20 million in state sales taxes in an expanded special sports taxing district Downtown. Under Sanders' earlier plan, Marion County would keep $40 million in state sales taxes collected in the county.

Sanders and Cockrum said Indianapolis produces far more sales and income taxes for the state than it receives under state distribution formulas. They said they want a plan that "acknowledges the reality that Marion County is the economic engine which funds the coffers of the state of Indiana's treasury."

If I'm a lawmaker outside Marion County, my response to the Sanders and Cockrum is very simple. If you want the state to pay for the cost of operating the damn stadium too, then we're going to take control of it. "The attitude of the General Assembly is, 'Ain't gonna happen,' " Rep. Phil Hinkle, R-Indianapolis, said of the council members' plans. "Why should we bail out the CIB for their mismanagement?" O'Shaughnessy writes, "Both leaders have been lobbying lawmakers from their respective parties this week in an effort to head off what one council member called a "train wreck" if the current plans under debate pass the legislature." "We have the majority because of votes like this, and that's why (the mayor's plan) is in trouble," Mike Speedy said. "I think we're going to see a slow-motion train wreck."

The Star has a sidebar to its story showing how each councilor indicated they planned to vote on the proposed bailout plan. It shows:

No: Democrats Vernon Brown, Jose Evans, Monroe Gray, Maggie Lewis, Dane Mahern, Angela Mansfield, Mary Moriarty Adams and Joanne Sanders; Republicans Ginny Cain and Mike Speedy; and Libertarian Ed Coleman.

Not ready to commit: Republicans Bob Cockrum, Ben Hunter, Robert Lutz, Michael McQuillen, Lincoln Plowman, Kent Smith and Ryan Vaughn.

Although Ryan Vaughn hasn't committed on how he will vote, he obviously will be required to abstain. His law firm represents the Indiana Pacers and Simon Property Group. His boss is Bob Grand, the firm's managing partner and President of the CIB. Sanders and Cockrum also face conflicts of interest, ignored by the Star to date, which should bar their participation in this decision. Sanders is employed by the union which represents convention workers. They obviously expect her to use her influence to pass a bailout plan that will benefit convention workers. Cockrum's son is an executive with White Lodging, which has already received tens of millions in public subsidies for its J.W. Marriott convention hotel and which stands to gain further from the CIB bailout plan. The CIB gives tens of millions of dollars to the ICVA, which markets conventions. Its marketing includes buying down room rates for conventions at hotels like the J.W. Marriott to lure conventions to Indianapolis.

Wednesday, April 22, 2009

Trying To Make Sense Of Water Company's Variable Rate Bond Mess

I continue to feel apoplectic towards Indianapolis public officials' complete lack of interest in learning the who, what, when and why of the interest rate swap notes which are contributing to the current financial demise of our Capital Improvement Board and Indianapolis Water Company. Last week, the Indianapolis Waterworks Board voted with little discussion to begin refunding three variable-rate bond issues totalling $448 million that carried a penalty of at least $85 million. The Board also voted to limit to 15% the share of debt issued by the water company that could be comprised of variable-rate bonds in the future. When a board member asked the water company's bond counsel on those original issues, Brenda Horn of Ice Miller, to explain the limitation, Horn said she lacked the qualification to answer his question because she is a bond lawyer and not a financial advisor. The former financial advisor, Umbaugh & Associates, has subsequently been replaced by Crowe Horwath. Without receiving any detailed explanation from a "qualified financial advisor", the Board moved forward with the adoption of the resolution. Despite knowing that the actions of the Board in 2005 to approve variable-rate bonds to replace the original fixed rate bonds approved as part of the original purchase of the water company from NiSource in 2002, had resulted in the interest rates on the debt climbing from the original 5% interest rate charge to more than 9% and a penalty payment of $85 million to get out of those notes, not a single member of the Board asked any questions to understand what had gone wrong.

The fixed rate bonds were replaced in 2005 with what are called interest rate swap notes. An "interest rate swap" is "a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows." Indiana taxpayers first learned that both state and local units of government had opted for these derivative debt instruments in February, 2008 when the IBJ's Peter Schnitzler reported that the state's decision to finance the construction of Lucas Oil Stadium with variable-rate bonds had resulted in significant interest expense for taxpayers. Schnitzler wrote at the time:

The debt strategy Gov. Mitch Daniels’ top financial officials developed to save the state money on major projects like Lucas Oil Stadium has turned sour. To pay for construction, the administration over the last few years issued $810 million in “auction-rate” bonds—a form of variable-interest-rate debt that once promised to shave costs. But this month’s unexpected meltdown of the U.S. auction-rate securities market has opened the state to risk of sudden spikes in interest.

And now, to avoid extraordinary payments for debt service, Indiana may have to spend millions of dollars on fees to issue replacement bonds.

As far as Wall Street credit rating agencies are concerned, the sooner Indiana addresses its problem, the better.

“We’d expect for a state as highly rated as Indiana, in this situation, that they would take some sort of action relatively quickly,” said Nick Samuels, a vice president for New York-based Moody’s Investors Service. “The state certainly understands what this issue is. And my understanding is they’re working on finding a solution.”

Daniels' Budget Director Ryan Kitchell downplayed the negative impact of the variable-interest rate bond problem to Schnitzler at the time. Kitchell told the IBJ the state would simply refinance the debt, and that the state could easily absorb the higher interest rates because of the lower interest rate savings the state had initially realized. The state refunded these riskier bonds last year, presumably, as did the Capital Improvement Board. Refunding variable-rate bonds cost the CIB nearly $17 million last year. To cover the hit, the CIB obtained an emergency loan from the State Treasurer, which it paid back this week nearly two months ahead of its payment due date. Bob Grand told the Municipal Corporations Committee that if the Board hadn't acted when it did, that $17 million would have risen to $40 million today. This begs the question of why the water company's variable-rate bonds were not similarly refunded at the same time to avoid higher interest and pre-payment penalties.

Experts with whom Schnitlzer spoke to suggested the initial decision to issue variable-rate bonds was not wise, including Diana Hamilton, who had served as a finance adviser for Govs. Frank O'Bannon and Joe Kernan. She is married to Ice Miller partner, John R. Hammond, III. Hamilton told Schnitzler at the time:

The Democratic gubernatorial administrations of Frank O’Bannon and Joe Kernan also did not tap that market, said Diana Hamilton, who ran the predecessor to the Indiana Finance Authority for both men.

“Not because I’m so much smarter than everybody else. It was really just a pricing thing,” she said. “These things change in the market a lot, and typically with auction-rate debt, you need to purchase bond insurance. And also the ... fees paid to the investment banker were higher.”

Yes, the bond issuer had to purchase insurance to issue this riskier form of bonded indebtedness. In this case, the bond insurers were MBIA and Depfa Bank. Bear Stearns entered into the swap notes with the Bond Bank. The bond prospectus laid out the risk of higher interest rates for the issuer. "If interest rates are materially higher than forecasted rates, debt service costs to the [water company] could result in lower debt service coverage or insufficient Net Revenues to pay such increased debt service costs." This is what perplexes me, the prospectus indicates that the water company had minimized its risks from higher interest rates with the interest rate swap. The prospectus stated that a hedge agreement "effectively convert[ed] . . . [the water company's] variable rate exposure . . . to a fixed rate." It warned that the water company "may owe a termination payment" due to a "significant ratings reductions by any party" if the hedge agreement was terminated. "Any such termination payment could be substantial and potentially adverse to the [water company's] financial position." It added, "[T]here can be no assurance that the Bond Bank would be able to obtain a replacement hedge agreement with comparable terms."

Did any of the parties on behalf of the Indianapolis Water Company, the Board and the Indianapolis Bond Bank who made the decisions to enter into these interest rate swaps truly understand the risks associated with them at the time they were asked to sign off on them? If today's scenario as being played out had been explained to them, it is inconceivable that these decision-makers could have incurred such extraordinary risk to the taxpayers. They were essentially playing craps at a Las Vegas casino on our dime. In this case, the water company's variable-rate bonds became problematic because the insurer's ratings were downgraded. The Bond Buyer explains this in its recent edition:

The problems with the issues reflect those that have afflicted borrowers with insured floating-rate debt over the last year as insurance downgrades prompted failed remarketings.

Skyrocketing liquidity costs complicated restructurings that leave the debt in a floating-rate mode while negative swap valuations that would lead to costly termination payments dampened the appeal of converting to a fixed rate.

As the cost of the variable-rate debt rose, the water district was unable to maintain required debt service coverage levels, and earlier this year began petitioning Indiana for an emergency rate increase to boost those coverage levels, said officials.

In addition to spending roughly $15 million more than budgeted last year on interest costs, the bond bank was forced to take out a $14 million loan to serve as collateral on a chunk of the debt that failed during a previous remarketing cycle and is now held by the bank liquidity provider. A $22 million payment under an accelerated repayment schedule required under the liquidity contract will be due in July if the debt is not refinanced by then, bond bank officials said.

The bond bank will also have to make a roughly $85 million swap termination payment as it refunds one of the debt series into a fixed-rate mode.

"We're at the point where we can't wait this out," said Deron Kintner, the bond bank's general counsel and deputy director. "We need to act. The water works bonds are priority number one." Fitch Ratings recently downgraded the water utility's outstanding debt to A-plus from AA-minus. Moody's Investors Service on Monday put the A1-rated debt on negative watch. Analysts cited the deteriorated debt service coverage as well as a number of other problems associated with the variable-rate debt, as well as the uncertainty of the pending rate increase. Standard & Poor's rates the debt AA-minus.

The three debt series, which total roughly $488 million, were originally sold in 2002 as part of a larger borrowing that allowed the city to purchase the water utility, which had been run by a private owner for a number of years. At the time, the $600 million deal was the largest borrowing in the city's history.

The bond bank refinanced a swath of the debt in 2005 to achieve savings to use for capital improvement projects.

The Indianapolis Department of Waterworks covers both Indianapolis and nearly all of Marion County, as well as portions of seven surrounding counties. The utility serves about one million customers. Of the district's $843 million of debt, nearly 60% is in the variable-rate mode. If the planned restructurings are successful, the utility's floating-rate exposure will drop to 5%.

The plan calls for refunding a $388 million series and a $48 million series, both VRDOs. Both are currently held by liquidity provider Depfa plc. A third series totals $50 million and is currently in auction-rate mode.

The bond bank plans to enter the market within the next few weeks to refinance the two smaller bond series and return in June to refund the $388 million issue, officials said.

Morgan Stanley is the underwriter and Crowe Horwath LLP is the bond bank's financial adviser. Ice Miller LLP is bond counsel.

The refundings will allow the bank to shed the insurance coverage provided by now-downgraded MBIA Insurance Corp. on all three series.

In refunding the $48 million 2005 VRDOs, the finance team plans to maintain the debt in the variable-rate mode but substitute a letter of credit from Harris NA in place of a standby bond purchase agreement with Depfa. Keeping the debt in the variable-rate mode allows the bond bank to maintain the existing swap with JPMorgan and avoid a termination payment, Kintner said.

The bond bank plans to refund the $50 million of auction-rate debt into fixed-rate mode and drop MBIA. He said no swaps are associated with the debt, and the finance team is still considering whether to purchase new insurance for those bonds.

In June, the bond bank expects to refund the $388 million series into fixed-rate debt, shedding the insurance as well as Depfa as the liquidity provider. The utility will be forced to pay roughly $85 million to terminate a swap on the debt, Kintner said. The swap counterparties are JPMorgan and Loop Financial Products LLC.

"The big piece has caused the most headaches," he said. "The termination value is extremely high, and the market isn't producing the liquidity needed to keep those in variable-rate mode. Our only option appears to be refunding those bonds with fixed-rate bonds and terminating the swap. We would like to avoid the fee but don't see any way around it."

The bond bank hopes to increase the size of the final refunding transaction to include the swap termination payment, but is still talking with its bond counsel to determine whether it would qualify as tax-exempt under the tax code, Kintner said.

The bank estimates it paid around $15 million more than budgeted last year - $57.3 million - on debt service, largely due to downgrades of MBIA and Depfa. The escalating costs led to a decline in debt service coverage to 0.99 times, below the bond-covenant requirement of 1.1 times.

Under the original bond agreement, the city is required to immediately petition the state commission for a rate increase once coverage drops below 1.1 times.

If The Bond Lawyer is too complicated for you, let's try Talking Points Memo's Moe Tkacik, who has an excellent explanation of what is happening to the Indianapolis Water Company right now and picked up on the issue after reading of all blogs, Advance Indiana:

Another day, another group of American taxpayers forced to cough up tens of millions of dollars to Wall Street over a little-noticed provision in a "swap" contract gone sour. Last week we brought you the parallel tales of sudden budgetary meltdown in Tennessee, Alabama, Illinois, New Mexico and Philadelphia that in part prompted the credit rating agency Moody's to issue a blanket negative credit outlook on all bonds issued by American cities and towns. Today it's the Indianapolis Water Authority being screwed in a swap deal that might force the utility -- and by extension, its customers -- to cough up a collateral call of as much as $100 million.

The deal is a familiar one: in 2005 the city of Indianapolis refinanced $550 million in fixed-rate bonds to raise money to fund its acquisition of its old water company from the private utility company NiSource, which agreed to sell it as a condition of regulatory approval of its merger with Columbia Energy Group. The deal involved the ailing bond insurer MBIA as well as a similar German-Irish firm called Depfa Bank, which insure the utility's ability to pay up by writing credit default swaps on municipal bonds that protect investors in the event of default. But as Barney Frank pointed out last week, the risk of municipal bonds defaulting is historically minimal -- while the risk that MBIA and Depfa might default was steadily rising as they began to chase the riskier (AIG-dominated) business of writing swaps on collateralized debt obligations. And when those "insurers" started to see their credit downgraded last year, suddenly it was municipalities like Indianapolis that were swamped with calls demanding collateral -- which translates to a major refinancing being funded by an emergency 17.5% rate hike this summer.

If you're having trouble getting your head around how this works, it's a little like this: in order to get a cheaper interest rate on your mortgage, you pay you bank extra for a "swap" insuring the investors who buy the mortgage in the case of your default. But then the bank that originated the mortgage starts making riskier loans and its credit rating agencies downgrade its debt, it turns out the owner of your mortgage can demand collateral from you. Except in the case of municipal bonds, the homeowners are cities and towns with the legal authority to tax citizens and an infintessimal record of actually defaulting -- and the banks were using your interest payments to extend home loans to unemployed high school dropouts and senile 80-year-olds living on Social Security.

Cities and states got suckered into these deals through a mixture of corruption and incompetence. In Tennessee, it appears to be the former; in Illinois, where former Gov. Rod Blagojevich has been charged with taking a cut of an $809,000 fee Bear Stearns paid a lobbyist for steering it the lead underwriter position in a 2003 swap deal, an elaborate conspiracy of corrupt public officials allegedly enabled such transactions.

No official corruption investigation into the Indianapolis deals has yet been announced, but a blog that has been following the deals depicts a typically cozy clique of bond lawyers, bankers and accountants surrounding the city's Bond Bank. This
paragraph in particular jumped out at us:

And just for the fun of it, it's worth noting that the person Mayor Ballard named as executive director of the Bond Bank is Kevin Taylor, who joined city government after leaving AIG's Global Investment Group. Yes, that's the same AIG of mega-government bailout fame. AIG's entry into the business of bond default insurance contributed to its financial mess. You just can't make up stuff this good.

And while enough newspapers are still in business to bring you the tale of a new city, state, school district or park authority getting screwed every day by the same unregulated swaps that begat the crisis, why would you bother?

Enough said. Will somebody in government please investigate what is going on? You at least owe the taxpayers that much after we're being asked to cough up all of the higher interest costs and penalty payments to the very people who just keep screwing us harder and harder as the days pass.

Sandra Day O'Connor To The Rescue

Former Associate Supreme Court Justice Sandra Day O'Connor paid a visit to South Bend today to urge St. Joseph County to fight efforts to do away with merit selection of its county judges and replace it with elected judges like we have in Marion County. Many in the legal community were shocked when the Republican-controlled Senate passed legislation contained in HB 1491, which abolishes the merit selection system in St. Joseph County, even as it was opposed by Sen. John Broden (D-South Bend). This is a big step backwards in the Indiana legal community's effort to clean up our judiciary. Efforts to bring merit selection to Marion County didn't even make it to first base this year. It is unfortunate that so many in my Republican Party are at war with good government in this state.

Hat tip to Indiana Law Blog.

Tuesday, April 21, 2009

Does It Matter Who Pushes A Legislator's Voting Button?

WTHR is running teaser ads promoting an investigative piece Bob Segall is planning to run Thursday night at 11:00 p.m. showing members of the House of Representatives pushing the electronic voting button of their seatmates when they are not sitting at their desks. In order for the member's voting button to be activated, he or she has to answer the roll call taken at the beginning of each session day. Often, lawmakers may step outside of the House chambers briefly to speak to a lobbyist or a constituent, or to take a restroom break or grab some food or drink from a vending machine. It is not an uncommon practice for a seatmate to cover for one of his or her colleagues if the lawmaker has asked them to do so, although the House rules clearly require each member to cast his or her own vote. I have not seen this practice being carried out in the more staid Senate.

I have first-hand experience with this issue from my experience working for the Illinois House of Representatives for six years from 1984-90. For three of those years, I served as floor manager for House Republican Leader Lee A. Daniels. In Illinois, it was a common practice for the legislative leaders to spend most of the time while the legislature is in session in their offices meeting with staff, lobbyists and other legislators. As part of my job, I was required to physically cast Daniels' vote for him at his direction. He had a monitor on his desk which allowed him to view each vote I cast in his absence. If he questioned the vote, he could immediately reach me by telephone and ask me to change the vote. During a three-year period, I cast 99% of the thousands of votes he was recorded as voting. The Speaker of the House, Michael Madigan, also had a person designated to cast his vote for him when he was not present on the floor.

The problem I had as a staffer came from the requests I received from other legislators. At times, I would be required to cast as many as seven or eight votes for various legislators who temporarily stepped outside the House chambers but who wanted to have their vote cast while they were absent. Dozens of State House reporters sitting in a nearby press box witnessed me doing this and never raised questions about the practice. There was a bit of an understanding with the media that this was the way business was done. A few years earlier, there had been a brief scandal when a reporter did a story showing House pages casting votes for members and another member shoving a paper clip in his "Yes" voting button, which had the effect of casting his vote for him even in his absence. That former member is now a U.S. Representative from my old district in Illinois, Timothy Johnson. There were many other far more interesting and scandalous stories about him, but I digress.

Segall's reporting is not in the least bit original. Reporters have done similar stories in other state capitols in recent years. A CBS affiliate in Texas had the same story on the Texas House of Representatives a couple of years ago. Generally speaking, if a really important vote is being taken, all of the members are present unless they are excused for illness or other personal reasons. I'm not bothered a whole lot by this practice as long as the seatmate is acting at the direction of the absent lawmaker, is voting according to his or her wishes and is doing so during the lawmaker's temporary absence. I would add that I don't think it's appropriate for a lawmaker to step out to watch a game or go see a movie and expect his seatmate to cast his votes during the absence. I found this practice more widespread when I worked in Illinois than during the five-year period I lobbied the Indiana legislature.

Who Would Take Lubbers' Senate Seat?

Word has leaked out that State Sen. Teresa Lubbers (R-Indianapolis) is the leading candidate to take Stan Jones place as Commissioner of Higher Education. If she accepts the job, she will resign her position in the Indiana Senate. Republican precinct committeepersons would caucus to pick her replacement. Any speculation on who will be interested in her seat? I'll throw out a few names. Steve Keltner, an emergency room assistant by occupation, ran for this senate seat as a Libertarian. Steve has subsequently switched his allegiance to the Republican Party. Ken Morgan ran a respectable primary race against Lubbers last year. Adam Nelson, an unsuccessful state representative candidate against Ed DeLaney last year, may have an interest in the seat. Also, Glenn Hatmaker, a former Senate staffer and precinct committeeperson, has expressed an interest in the seat in the past.

UPDATE: Add to this list these political insiders who don't have to look to grassroots support for help at a caucus of mostly-appointed committeepersons: City-County Councilor Ryan Vaughn, Rep. Cindy Noe, former Goldsmith hack Anne Shane and former BMV Commissioner Ron Stiver.

Here's another thought. Shouldn't there be outrage at Lubbers for resigning her senate seat less than six months after she won re-election? This has become a standard practice of legislators to resign their seat in the middle of their terms rather than not seeking re-election at the end of their terms. The consequence of this action is to deprive voters of the right to pick their legislator. Lubbers' replacement will get to serve for 3 1/2 years before he or she will face voters. I'm getting so sick and tired of this practice. It is time we changed the law to require special elections. Maybe we would have a lot less resignations if the resigning legislator knew it would be hard for party leaders to handpick their replacement.

CIB Playing Politics With Bailout?

WRTV's Norm Cox has an interesting item he posted on the Capitol Watch Blog today:

One idea that’s been floated in the last twenty-four hours is already dead. Rep. Ed DeLaney, (D) Indianapolis, and several of his colleagues proposed a stop-gap measure yesterday that called for, among other things, the state treasurer to delay collection on a $17 million bill the C.I.B. owes for issuing fees on the stadium bonds. Somebody should have called DeLaney before the news conference. The C.I.B. already paid that fee yesterday morning, a few hours before DeLaney spoke.

Okay, so the CIB rushed to repay a $17 million loan from the state that it was not obligated to repay until June. Did the CIB even consider asking the state to defer its payment? That is precisely what it did with $36 million in debt owed to the Circle Centre mall investors. The consequence of paying off the loan means the reserves of the CIB fall below a level required as security for bondholders. In effect, the CIB's actions are a deliberate attempt to further exacerbate its financial woes in the closing days of the legislative session to force through the $48 million tax and spend plan it wants. Remember, this is the same CIB which knowingly went forward with a lease agreement with the Colts to manage and operate the state-owned and constructed Lucas Oil Stadium knowing that it didn't have the money to pay those expenses. Simply put, you can't trust the CIB. These people will do anything to get what they want. It's time to hold these people accountable for their gross misconduct.

UPDATE: The CIB bailout bill is likely to be heard by a conference committee later this week. Rep. Jeff Espich (R-Uniondale) is indicating that he's willing to go along with about half the tax increases the CIB is seeking and waiting awhile to see if it needs the $48 million a year it claims is needed to close a budget shortfall. Also, I'm told the CIB decided it would make the payment early at its April 14 meeting. This still begs the question why the CIB didn't consider seeking a deferral of the payment obligation. The only palatable solution to avoid raising taxes is for the CIB to terminate its lease on LOS and turn it back over the State of Indiana, which actually owns the stadium. If Marion County councilors truly want the costs of LOS to be shared statewide, then this is the only solution. Councilors won't go along with this for one reason. They don't want to give up local control of all of the free tickets and the use of the Mayor's suite to watch the games. That's one of the reasons the CIB has been popular with the council for so many years and why it has been able to get by running a deficit for the last decade and nobody would ask any serious questions about what was happening.

Feinstein Helps Hubby's Business

There's nothing like one of the Senate's wealthiest members, Sen. Diane Feinstein, making money off of the mortgage crisis in this country, but that is exactly the appearance her official actions as a U.S. senator give off. The Washington Times reports that Feinstein sponsored a $25 billion appropriation for the FDIC after her husband's commercial real estate firm had been awarded a lucrative contract to handle foreclosed properties. The Times reports:

On the day the new Congress convened this year, Sen. Dianne Feinstein introduced legislation to route $25 billion in taxpayer money to a government agency that had just awarded her husband's real estate firm a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.

Mrs. Feinstein's intervention on behalf of the Federal Deposit Insurance Corp. was unusual: the California Democrat isn't a member of the Senate Committee on Banking, Housing and Urban Affairs with jurisdiction over FDIC; and the agency is supposed to operate from money it raises from bank-paid insurance payments - not direct federal dollars.

Documents reviewed by The Washington Times show Mrs. Feinstein first offered Oct. 30 to help the FDIC secure money for its effort to stem the rise of home foreclosures. Her letter was sent just days before the agency determined that CB Richard Ellis Group (CBRE) - the commercial real estate firm that her husband Richard Blum heads as board chairman - had won the competitive bidding for a contract to sell foreclosed properties that FDIC had inherited from failed banks.

About the same time of the contract award, Mr. Blum's private investment firm reported to the Securities and Exchange Commission that it and related affiliates had purchased more than 10 million new shares in CBRE. The shares were purchased for the going price of $3.77; CBRE's stock closed Monday at $5.14.

Spokesmen for the FDIC, Mrs. Feinstein and Mr. Blum's firm told The Times that there was no connection between the legislation and the contract signed Nov. 13, and that the couple didn't even know about CBRE's business with FDIC until after it was awarded.

Senate ethics rules state that members must avoid conflicts of interest as well as "even the appearance of a conflict of interest." Some ethics analysts question whether Mrs. Feinstein ran afoul of the latter provision, creating the appearance that she was rewarding the agency that had just hired her husband's firm.

"This clearly gives the appearance of a conflict of interest," said Kent Cooper, a former federal regulator who specializes in government ethics and disclosures. "To maintain the people's trust in government, it is incumbent on a legislator to take the extra steps necessary to ensure that when she introduces any legislation that it does not cause people to question her motives or the business activities of her spouse."

Mrs. Feinstein and Mr. Blum, a wealthy investment banker, are a power couple in both Washington and California who sat behind President Obama during his inauguration in January. Mrs. Feinstein also is mentioned as a candidate for California governor.

The FDIC contract "highlights the problem of a senator with a spouse who has extensive business interests that intersect frequently with the federal government," said Melanie Sloan, executive director of the watchdog group Citizens for Responsibility and Ethics in Washington (CREW). "Even if there is no actual conflict of interest, it often has the appearance of a conflict."

The story points out that CBRE's business is on the commercial real estate side and that it has no experience handling foreclosed residential properties, which begs the question of why the FDIC chose CBRE instead of a business with residential experience. Despite the appearances, Sen. Feinstein will probably skate on any ethics charges. As the Times reports:

Robert L. Walker, a former chief Senate Ethics Committee counsel, said the Senate conflict rule is so narrow that it "almost requires a senator's sponsorship of a private bill resulting in some personal or family benefit before a violation of the rule would be found."

Monday, April 20, 2009

Indy Lawmakers Demanding Reform Over Bailout

Three Indianapolis lawmakers, Rep. Ed DeLaney (D), Rep. Mary Ann Sullivan (D) and Rep. Phil Hinkle (R) are touting a plan for the CIB's short-term finances to be shored up by government loans rather than a host of new taxes in order to allow lawmakers more time to permanently reform the CIB. DeLaney, speaking for the three lawmakers, says that nearly $50 million in surplus money held by Marion County's township trustees should be tapped to serve as a pledge to help cover the CIB's $17 million loan repayment due to the state , which he would like to see the state temporarily defer, and another $26 million debt obligation that will come due in September to free up enough money in its current budget. DeLaney says his plan is getting lukewarm support. Why? He says because the plan calls for reform of the CIB as a opposed to a bailout. DeLaney says it's wrong for government to ask taxpayers to pay more taxes when the government is holding money in its left pocket that it can share with its right pocket.

DeLaney's harsh words for the plan passed by the Senate and backed by Mayor Greg Ballard and CIB President Bob Grand is a blow to the Indianapolis bailout push. DeLaney is a former, long-time partner at Barnes & Thornburg where Grand currently serves as managing partner. Ironically, DeLaney and his wife, Ann, are very close to former Mayor Bart Peterson and his former CIB President, Fred Glass, both of whom share much of the blame for the current financial mess in which the CIB finds itself. Sullivan's husband is an executive with Shiel-Sexton, the construction company which won big contracts for Lucas Oil Stadium, the Indiana Convention Center and the J.W. Marriott convention hotel projects. Hinkle is a former City-County Councilor who has butted heads with the administration over its bailout plan, as well as its handling of the government consolidation efforts in Indianapolis. Hinkle's concerns have been largely ignored by the Ballard administration.

The plan's chances of success doesn't sound encouraging from DeLaney's comments today about the lukewarm support it's getting, but it's one of the only good ideas I've heard coming from the State House to date. More importantly, it buys time for both lawmakers and Indianapolis City-County Councilors to conduct a top-down investigation of the CIB's finances, find out what has gone wrong and come up with a permanent solution to the madness of continuing to feed this CIB monster without any accountability.

Meanwhile, as Ballard devotes all of his energies to raising taxes for the billionaire sports team owners, IPS announces plans to lay off more than 300 teachers district wide as it closes more schools. This comes on the heels of new test results showing a failing performance grade for most of Indianapolis' public schools. As long as we have the absolute best sports palaces in the country, who gives a damn how bad our public schools are?