Saturday, April 16, 2011

North Of South Deal: The Fleecing Of Indianapolis Taxpayers

The IBJ's Cory Schouten has a must read story in this week's edition on the North of South deal the Ballard administration recently negotiated that is being entirely financed by taxpayers with zero risks to the private developer and a side windfall for Eli Lilly. It's an analysis that should have been undertaken by the City-County Council and laid out in plain and simple terms for all to understand and absorb before taxpayers were asked to be put on the hook for $116 million in investments--more than the $98 million bond deal that taxpayers were told about. There is no other city in America where such a deal could have been brokered that so royally screws taxpayers to enrich pay to play political insiders.

As Schouten explains, Indianapolis taxpayers are acting as a private lender by issuing bonds totalling $98 million to help finance the project. In addition, city taxpayers are providing an additional $9 million in infrastructure improvements for the project, while state taxpayers are kicking in another $6 million. The politically-connected developer, Buckingham Properties, which is owned by Brad Chambers, is contributing nothing to the deal even though he will wind up owning 100% of the project at the end of the day if the deal is succcessful.

Of the $98 million in bonds being issued for the deal, only $86 million is going directly into the project. The other $12 million is needed to pay the fees to the pay to play attorneys and investment bankers for their cut of the deal and the cost of pre-paid interest on the borrowed money while the project is under construction. Buckingham is credited with an initial $7 million equity interest in the deal for being so kind as to waive to "waive development fees" for a project totally financed with your money. Oh, and Chambers will be able to sell off components of a deal in which he invested no money to other investors as the project proceeds with all of the profits going to him, even if other components of the deal fail.

And guess who the city hired to watch over Buckingham? Keystone Construction. That would be the politically-connected minority-owned contracting firm that has pumped tens of thousands of dollars into Mayor Ballard's campaign committee and hired Ballard's former Chief of Staff Paul Okeson in a high-paid position to make this deal and others happen. Gee, I wonder what Paul's cut of the deal is? Former Marion Co. GOP Chairman Tom John, an Ice Miller lobbyist, was paid to lobby the deal on behalf of Buckingham.

Eli Lilly is credited with being the driving force behind the deal because of its desire to have the new amenities offered by the mixed use development project near its downtown corporate campus. Taxpayers were told $15 million was being pumped into the deal by Lilly, but as Schouten discovered, that's a pretty illusory investment when you cut through the complicated paperwork behind the agreement. The $15 million supposedly represents the shortfall Lilly has paid over the years after city and state officials granted the company hundreds of millions of dollars in tax incentives to make approximately $1 billion in new investments at its Indianapolis facilities. Part of that agreement, as Schouten explains, required the City to give Lilly part of Kentucky Avenue and make another $36 million in road improvements. In consideration for the City's gift to Lilly, the company promised to invest at least $189 million in its Harding Street facility, an investment Schouten says Lilly assured the city it had exceeded.

So why was there a shortfall? Despite the claim Lilly made $357 million in investments, property taxes generated from the new improvements were insufficient to cover payment on the bonds issued to cover the improvements made by the City. “Assessed values used in the forecast and the ultimate values were different,” Lilly's vice president of taxes David Lewis told Schouten. As part of the deal, Lilly has graciously agreed to let the City off the hook for the money it kicked in to pay for improvements that exclusively benefited the company. Yet the City still owes $44 million on those $36 million in road improvements it made more than a decade ago and is scheduled to make bond payments through at least 2024 according to Schouten. No longer will the City have Lilly as a backstop to make up the shortfall in bond payments as it has in the past. Do these deals leave yourself asking who in the hell is at the table representing taxpayers' interests?

The deal was so bad from the standpoint of taxpayers that even Democratic mayoral candidate Melina Kennedy, whose former boss Mayor Bart Peterson helped broker the deal and who had her hand in his administration making her fair share of one-sided deals to benefit Peterson's buddies, including Kite's Conrad Hilton and the Simons corporate headquarters, winced upon being apprised of the details. “Certainly, the actual development itself will be positive for downtown, but I believe some of the negotiating on the city’s behalf wasn’t as aggressive as it should have been to protect the taxpayers,” she said. Lest I forget to mention the 2,000 free parking spaces that are still owed to Wellpoint for graciously agreeing to build its corporate headquarters downtown. The displacement of parking spaces for the North of South development will have to be made up elsewhere--on your dime, of course.

Taxpayers are being fleeced, plain and simple, for a project that offers no clear benefit to the public, said Julia Vaughn, policy director for the government watchdog Common Cause Indiana.
If North of South really were such a certain success, the developers should have been willing to part with some of their own money to help finance it, she said.

“It really shows what the city’s priorities are,” Vaughn said. “We’re going to help out a private developer and one of the largest pharmaceutical companies in the world, yet we’ve got a second-rate public transport system, infrastructure is falling apart, neighborhoods have so many needs. But apparently the checkbook is open if you’re the right corporate citizen.”

The arrangement sounds like the deal between the city and the Indianapolis Colts that paved the way for Lucas Oil Stadium, said Gary Welsh, author of the cantankerous political blog Advance Indiana.


The city under former Mayor Bart Peterson credited the Colts with contributing about $100 million toward the stadium, but the claim was disingenuous at best: The team had simply agreed to waive the lease-termination fee on the RCA Dome in exchange for a state-of-the-art new stadium.

Welsh’s problem with deals like North of South is that they prevent property taxes collected downtown from going to anything other than new downtown projects, to the detriment of neighborhoods and schools.

“They always make those deals so complicated, deliberately so, to confuse people and make it seem like money is coming out of someone’s pocket that it really isn’t,” Welsh said.

But for Buckingham and Lilly, North of South makes perfect sense.
The public owes a debt of gratitude to Schouten for taking the time very few reporters in this town will take to get to the bottom of these matters. My only disappointment is that we did not have the benefit of this kind of analysis prior to the approval of the deal. As with all of these deals, the City plays hide the ball with all the facts and figures until the ink has dried and it's too late to undo a deal that once again screws the taxpayers in order to enrich a handful of political insiders. These insiders laugh behind our backs. They can't believe how stupid our elected officials are in this town, and how easy it is to slip money in their pockets and pull off these deals that make them tens of millions of dollars at the expense of taxpayers. Let the word go out to all of America. Indianapolis is the place to do business if you're corrupt. The politicians can be bought cheap, and the haul at the end of the day is well worth the investment. As an added benefit, there are no prosecutors looking over your shoulder because they are always in bed with the people doing the deals. Immunity from prosecution. You can't beat it.

6 comments:

Citizen Kane said...

Even this analysis had been done, the council would have ignored it anyway. Until the citizens wake up from theri partisan slumber and storm the gates of hell, nothing will change.

Advance Indiana said...

Sadly, you're probably right, CK. Go Colts! That's about all that gets their attention anymore.

Paul K. Ogden said...

CK, I agree. That's exactly why they went out and got the economic analysis of the impact of the Pacers from a pro-development group rather than rely on the plethora of academic studies that say spending on professional sports is a bad investment for municipalities.

Had Enough Indy? said...

This deal really does demonstrate that this administration is either rotten or incompetent.

Advance Indiana said...

It's a combination of the two, Pat. Today, people working in government go out of their way to ingratiate themselves to people in the private sector with these sweetheart deals in order to land lucrative jobs for themselves when they leave government. The least of their concern is what the long-term implications of their actions are to the taxpayers.

Paul K. Ogden said...

AI,

Exactly, that's why I cringed earlier today when a Libertarian posted something on Facebook about how great it would be if we turned the city over to private business and let them run it.

Have they been asleep for the last 15-20 years and seen what's happened with privatization and public-private partnerships?