Tuesday, October 05, 2010

Ballard's North Of South Taxpayer-Financed Deal Fraught With Risk For Taxpayers

It's all about making the city look good for the 2012 Super Bowl and raising money for his re-election campaign. Indianapolis Mayor Greg Ballard could give a damn less how much he is putting taxpayers at risk in a proposed $155 million development project that includes a high-end hotel especially designed to serve Eli Lilly's needs, apartments and retail space called North of South on the southern edge of the downtown area. Despite this being everything against what he stood for as a candidate in 2007, Ballard sees nothing wrong with pouring out tax dollars into a private development and even making taxpayers serve as the principal guarantor. Experts tell the Star's Jeff Swiatek the deal is "stacked with risks" and "highly unusual."

A former mayor of Pittsburgh finds it "gutsy." A New York real estate attorney calls it "extremely unusual."


They're referring to Indianapolis Mayor Greg Ballard's proposal, revealed last week, to guarantee an $86 million loan to build a hotel, apartments and office and retail space near Eli Lilly and Co.'s headquarters on the south edge of Downtown.

In essence, the city would be taking on the role of banker by financing the privately developed, mixed-use project. Few cities are willing to go that far.

And, perhaps, for good reason.

The move is fraught with risk, putting taxpayers on the hook for the success -- or failure -- of a $155 million development at a time when there's an oversupply of hotel rooms and office and retail space and most lenders are avoiding new commercial real estate . . .
 
Ballard's proposal would make the city the mortgage holder on the proposed 14-acre development, called North of South, and guarantee its construction loan with property tax revenues from Downtown tax-financing districts.


In past public-private projects in Indianapolis, such as Circle Centre mall and the JW Marriott hotel, the city became a minority equity investor or financial partner, but it has never backed the main loan with its taxing power on a private project of this size.

"The risk of not doing it outweighs the risk of doing it," said the executive director of the Indianapolis Bond Bank, Deron Kintner. "It just made sense here. We don't intend it to be an everyday practice" . . .

The city has rejected other requests for similar city loan deals from other developers, said Cagann, whose company several years ago submitted a proposal to redevelop the former Market Square Arena site.


"We're encouraged the city is considering alternate financing mechanisms with the current situation in the market," he said, but "it puts a project with city backing in competition with everyone else. I don't understand how they (the city) go about selecting this one over other things proposed."
"We don't intend it to be an everyday practice," Kintner tells Swiatek. Just a practice for people who stuff Ballard's campaign re-election committee with big bucks, buy him expensive meals at upscale restaurants and give him free memberships to country clubs. Former Mayor Bart Peterson, now a V.P. at Lilly, is having a good laugh at Ballard's expense at how easy it is to get Ballard to do unpopular things that will ensure his defeat in next year's election, while paving the way for his former deputy mayor, Melina Kennedy, to regain control of the mayor's office for the Democratic Party.

9 comments:

Paul K. Ogden said...

I also noticed that the former Mayor who called it "gutsy" also said he wouldn't have done it himself because it's too risky.

Advance Indiana said...

Did you notice former Mayor Bill Hudnut said he opposed Ballard's privatization plan for the parking meters as well? I think the Pittsburgh mayor works for the same organization where Hudnut worked after leaving Indianapolis.

Cato said...

I suppose this conclusively proves that Republicans have no respect for the concept of "enumerated powers," or limits on what the government should and should not do.

To Republicans, governmental power is boundless.

Paul K. Ogden said...

No, I didn't see that AI. To his credit, Hudnut pursued a pay as you go philosophy...that is projects were supposed to pay for themself and debt paid down. That philosophy has been abandoned by Godlsmith, Pterson and, in a big way, Ballard.

I say that even though I was not a fan of Hudnut at the time.

Paul K. Ogden said...

Cato, the "enumerated powers" are in Article I, Section 8 of the U.S. Constitution and just limits the power of the national government and not the states. No such limit applies to state governments. Contrary to what a lot of Libertarians think, tates do not need specific authorization under the Constitution to pass a law. Rather it works in reverse - unless it specifically says states cannot pass a law, they can.

Local government powr is more limited though as they can only do whatever the states allow them to do. Indiana grants local government a lot of power through home rule...which creates a power arrangement similiar to the national-state. Basically unless it specficially says a local government cannot take an action, the local government can.

I don't see anything unconstittinoal about this deal. (It might be against a statute, however.) That doesn't make it good policy, however.

Cato said...

Paul, the U.S. Constitution is irrelevant to this discussion.

Cities are created by state law to serve a specific purpose. The State has a constitution. This state constitution has enumerated powers. How can the state create an entity that has more powers than the state?

Merely because a governmental body is not bound by the U.S. Constitution does not mean that the government has no limits, far from it. Without specific grants of authority, governments can do nothing, at all.

Governments derive their just powers from the consent of the government. When did anyone ever consent to creating municipal government that was incapable of acting ultra vires?

The first thing Libertarians ask of government is: "what must we do?" Republicans ask "what can we do?"

Cato said...

Paul, the U.S. Constitution is irrelevant to this discussion.

Cities are created by state law to serve a specific purpose. The State has a constitution. This state constitution has enumerated powers. How can the state create an entity that has more powers than the state?

Merely because a governmental body is not bound by the U.S. Constitution does not mean that the government has no limits, far from it. Without specific grants of authority, governments can do nothing, at all.

Governments derive their just powers from the consent of the government. When did anyone ever consent to creating municipal government that was incapable of acting ultra vires?

The first thing Libertarians ask of government is: "what must we do?" Republicans ask "what can we do?"

dcrutch said...

"To Republicans, governmental power is boundless."

With due respect and genuine agreement for the notion that government is not to have "boundless power", I have three words for you: President Barrack Obama.

Central Indiana Jobs with Justice said...

The Put Communities First Campaign will be protesting this project, as well as the Circle Centre Arts Garden connector to the Hyatt tomorrow at the 1:00 MDC meeting. The more people we can get to show up at these committee/commission meetings the better. The decisions have been made in the dark across administrations for some time now, and it is time for things to change.