Tuesday, September 28, 2010

More Questions On City-Financed Downtown Project

If Jeff Swiatek's story in today's Star is any indication, it looks like at least Democratic councilors may challenge approval of the City of Indianapolis financing a $155 million private developer's plan to build a hotel, apartments, retail space and a YMCA largely for the benefit of Eli Lilly and Wellpoint on the City's near southside downtown area. There are also many unanswered questions that must be addressed.

Joanne Sanders, the Democratic minority leader, said she would rather see the money help the IndyGo bus system and the library, whose budgets have been slashed because of the recession. "We're doing this for a private entity," Sanders said, "but we have two government entities dying on the vine."


Council President Ryan Vaughn, a Republican, said the project "goes a long way to stabilizing and securing the large corporate citizens of Downtown. It breathes some life into that part of Downtown."
The first question to be asked is what, if any, role Vaughn's law firm, Barnes & Thornburg is playing in this transaction. As we've seen with almost every major transaction undertaken by the Ballard administration, there seems to be a Barnes & Thornburg connection.

Next, as I've written about on many occasions in the past, Pay To Play Is The Ballard Way. Sure enough, that's the case with this deal:

Buckingham -- whose president, Bradley Chambers, donated $10,000 to Ballard's mayoral election campaign, according to public campaign records -- hopes to start construction on the 10-building project late this year. Construction would take two years, with a 152-room Dolce-brand hotel being one of the first things to open in 2012, perhaps in time for the Super Bowl that Indianapolis will host in February 2012.
Is it the case as one reader asks that the public relations work for this project was being aided by Hirons & Company? That would be the same firm that hired Greg Ballard, Jr. and started getting all kinds of work from the Ballard administration, which Ballard assures us has absolutely nothing to do with his son working for the company.

We know Lilly is donating the land for this project, which the City has grossly over-valued at $15 million, sort of the way they did that parking garage for Tadd Miller's project next to the City-County building, which was supposed to get underway within 9 months (it's now been more than a year later, but we'll save that one for another post). We learned from the Tadd Miller project the City uses a bogus appraisal method in violation of state law that projects what a piece of real estate is worth post-development as opposed to pre-development.

The Lilly land, valued at $15 million and used by Lilly for employee and vendor parking, has become an "idle asset" as Lilly's work force shrinks, said Lilly's director of strategic real estate, Steve Van Soelen.
Lilly and its employees stand to benefit by having a hotel, new apartments and a YMCA adjacent to its corporate campus, he said.
Lilly also would put about $15 million into the project from money the city owes Lilly from a project done at Lilly's technology center campus off Kentucky Avenue in the 1990s, Kintner said. The city plans to pay off that debt with a lower-interest loan, and Lilly has agreed to put the proceeds from the payoff into the North of South project, Kintner said
Lilly is being credited with $15 million the City owes it for the Kentucky Avenue project from the 1990s? What about all of the millions that the City is supposed to be clawing back from Lilly because it failed to meet its job creation promises after the City awarded it hundreds of millions of dollars in tax abatements and other incentives and instead shed thousands of jobs at its city facilities over the last several years. See these past headlines:  "Eli Lilly Gets Indianapolis Incentives of $214 Million for $1 Billion, 7,500-Job Deal"; "Eli Lilly To Layoff 5,500 Workers Mostly in Indiana". Presumably, Lilly is putting people up at other hotels in downtown currently. What impact will the loss of that business have on those downtown hotels and has anybody bothered to factor that into this equation? And please, Lilly employees could care less about having a YMCA near their campus. Don't insult our intelligence.

The City claims its investment in the deal is relatively small compared to other recent projects:

Kintner said the city's $9 million direct investment in the project amounts to only 6 percent of the total project cost, much less than the 25 percent to 30 percent direct city investment in three other recent Downtown developments: the JW Marriott hotel, the headquarters of Simon Property Group and the Conrad Indianapolis Hotel.

The City's investment is small if you assume the developer doesn't default on the $86 million debt obligation the City is taking on with this transaction and stick taxpayers with paying it off, which is a real possibility.

Kintner said the city-guaranteed bond to the project is meant to be paid back using $7 million a year in anticipated profits and property taxes from the project.
I lay 9 to 1 odds right now this project willl not yield the $7 million a year in anticipated profits and property taxes.

So how much is the big Ballard contributor putting into the project, who claims who couldn't obtain conventional financing for the deal?

Other private money in the deal is $7 million from Buckingham. The city also is working with the state of Indiana to steer $6 million into the project through a Community Development Block Grant or other federal grant.
 
Not bad for Buckingham. A 5% investment in a $155 million project. See what I mean when I say Welcome To Fantasyland?

We also have Lilly donating land that is supposedly worth $15 million, which we know is really worth a fraction of that amount. We have some mystery money supposedly owed by the City to Kentucky for its Kentucky Avenue project from more than a decade ago but no mention of the clawback money owed to the City by Lilly from the tens of millions in past incentives that failed to create the requisite number of jobs promises. We now know state taxpayers are being asked to kick in another $6 million for the project, even though Gov. Daniels is slashing state agency budgets and laying off state workers left and right. Like I said, it's more of taxing the poor to give to the rich. Are you going to stand for it? Or are you going to pick up the telephone and start calling your councilors and the Mayor's office to express your outrage?

UPDATE: A commenter on the Star's website has a good summary of who is paying what on this project, noting 84% of the project is being financed with public dollars:

$86 Million - Indianapolis Bond Bank


$15 Million - City of Indianapolis (Payment thru Eli Lilly?)

$9 Million - City of Indianapolis (utility/sidewalk/roads)

$15 Million - City of Indianapolis Lease of Eli Lilly Parking Lot

$6 Million - State of Indiana through a Community Development Block Grant

$18 Million - YMCA

$7 Million - Buckingham Companies

None - Dolce Hotels and Resorts

None - Wellpoint

None - Indiana Farm Bureau

$156 Million Total Project Cost

84% Government Funding - $131 Million

16% Private Funding - $25 Million

11 comments:

Cato said...

How is the City on the hook for closing Kentucky Avenue, which Lilly wanted? That's Bush-in-Iraq accounting. You know, they'll pay for their invasion with their oil, sort of thing.

If I were Mayor, I'd drive down Kentucky Avenue, Daley-style, and bulldoze Lilly off our street, and reopen it. It's so tank town to close a major street because a company wants it.

Good work, Gary.

Paul K. Ogden said...

The Lilly development killed Kentucky Avenue as a major thoroughfare in this city. It has led to blight all along KY Avenue. I wish this city would stop letting Lilly build buildings in the middle of city streets.

James said...

Okay... as you know, I was somewhat supportive of this idea before we had much info. Now it's starting to stink.

I'm hearing different things on the land: I'm hearing that Lilly is "donating it" and then I'm hearing that they will retain ownership of the land (IBJ).

I'm also hearing that the City will guarantee the bonds (Star).

At this point the deal is unconscionable.

My original support was based on the idea that it would be funded by money that otherwise wouldn't be available: However, the $6 mil CDBG money, the $9 mil Street and Utility and the $15 mil parking lot is all money that could be used elsewhere... not to mention the forgiving of the clawback funds.

This is wrong that a private company should put up only $5 mil while the public puts up the rest and Lilly even holds on to it's ownership of the land.

If we are going to do this.. and we shouldn't... then the City should have a majority ownership stake in the deal.
Of course that would beg the question why the City would do such a thing.

Concerned Taxpayer said...

So WE (the 40% of us who pay taxes) PAY Lilly $15 MILLION$$ to TAKE Kentucky Avenue (A PUBLIC STREET)away from commuters (I was one)and build another building on it???!!!
WHAT A GREAT CITY! Republicans...WHERE ARE YOU?

Downtown Indy said...

Why is it every deal that gets made is a 'shot in the arm' or 'breathing life into the downtown?'

Shouldn't the downtown be off life support and breathing on its own by now?

Or is this like Gleevec, where patients have to take the medicine for the rest of their lives to keep from dying of their cancer? (Sorry, that's not a Lilly drug...)

Bill said...

How much you wanna bet that Keystone Construction is in this deal.They and Hirions are making millions off of the relationship with the Mayor.

Hirons hired Ballards son and gets no bid city contracts with in 3 months.No one else got to bid at all

guy77money said...

The major problem is the cities (not just Indianapolis) are starting to act like the federal government and spend money they don't have. To be perfectly honest I don't see the states economy ever bouncing back to the way it was at the top of the bubble in 2007. With KY and Ohio legalizing casinos and no end to the housing downturn don't look for state revenues to rebound for the next 10 years. Throw in the problems with Lilly having very little in the pipe line for new drugs and I see no major growth in our city's most prominent employer anytime soon.

HOOSIERS FOR FAIR TAX said...

Downtown Indy...this is the life blood of big pharma. They keep you sick to keep you coming back for more of what they are selling. You stay sick and they take your money.

Hoosier in the Heartland said...

According to its website, "Most Dolce hotels, resorts and conference hotels are situated just outside major metropolitan areas on large campuses that offer visitors a 'green oasis' consisting of forests, gardens, parkland and even vineyards, providing a 'perfect retreat to recharge and reconnect'."

Just how does this site, hard by downtown, fit into that brand's strategy? There is nothing in their 26-property portfolio that even resembles the purpose alleged for this property.

Sounds to me like another mayoral pipe dream!

Citizen Kane said...

Ponzi schemes, by definition, can't survive on their own. This is a debt-supported Ponzi scheme that would result in indictments if it involved a private individual like Madoff who could distract the populace from the larger ongoing government Ponzi scheme. They have the Fed and the China; we have TIFS, the bond bank and privatization machinations.

Marycatherine Barton said...

Of course, all should be pressuring their elected representatives and the mayor to stop taxing them for nonessential services, especially those who supported Ballard and Daniels and Carson (not me} in the past. Jefferson wrote that Americans would all be wage slaves, with no time to think, if government was allowed to tax us the way it now does.