Okeson Departs CIB; Lathrop Defends Potesta

As this blog first reported, Ballard-appointee to the CIB, Jay Potesta, has taken a job in Washington, D.C. as a lobbyist for the Sheet Metal Workers International Union and has been absent from at least half of the board meetings since he took his new job in Washington, but CIB President Ann Lathrop defended his continued service on the board. This weekend's "Behind Closed Doors" column in the Star reports:

Lathrop defended the continued service of another board member, Jay K. Potesta, who has had spotty attendance at recent CIB meetings. Potesta is assistant director of government affairs for the Sheet Metal Workers International Association--based in Washington, D.C.

He travels to Washington on a consistent basis for work, Lathrop said. But she noted that Potesta still maintains a home and pays taxes in Indianapolis. He also serves on the Ports of Indiana Commission.

Our Republicans friends at the State House and the City-County Building have cut a deal with Potesta's union to give them seats on key boards you see to get unlikely union endorsements for Republican candidates like Ballard and Gov. Daniels. To hell with what is in the public's interest or whether their union supports anything remotely similar to the beliefs held by traditional Republicans. As long as we ensure full employment for their card-carrying union members on publicly-financed projects and continue to pay unfairly high wages for those projects, the union will even endorse a Republican. What do you want to bet both Ballard and Daniels will publicly oppose right to work legislation being pushed at the State House by some Republican lawmakers? And let's not forget that candidate Ballard four years ago promised not to appoint lobbyists to city boards--another one of his many broken promises.

The column also notes the departure of Paul Okeson from the board, who traded his job as chief of staff to a minority contractor that has been making off like a bandit under the Ballard administration, Keystone Construction. "Okeson, the board's treasurer, says the timing was right to leave because the CIB has mostly resolved serious financial difficulties and several other issues--including reaching a financial assistance deal with the Indiana Pacers--that he had begun to address while working for the mayor," the column reports. Translated, Keystone Construction is about to be rewarded again by Okeson's actions while serving on the CIB just like it was while he served as Ballard's chief of staff and he needed to put a little distance between the CIB and his employer given the continued presence of FBI agents who have been probing public corruption in Indianapolis. We wouldn't want his ties to a city contractor becoming an issue in this year's mayoral election, would we?

UPDATE: I neglected to mention Ballard plans to appoint former BMV and Workforce Development Commissioner Ron Stiver to take Okeson's place on the board. Stiver is an executive with Clarian. Ballard was no doubt ordered by Bob Grand to appoint Stiver so he would have another stooge on the board to continue to control it as if he were still running the board himself.

Why Does CIB Need A PR Contract When Media Does Its PR Work For It?

WTHR's Mary Milz recently questioned a $36,000 a year public relations contract the CIB awarded to former Ballard communications director Robert Vane. Perhaps the real question is why the CIB would even need to pay anyone to do PR work given the local news media's proclivity to fall all over itself applauding the CIB for a job well done. Exhibit one is Jon Murray's story in today's Star discussing how the CIB miraculously turned a huge budget deficit of just a couple of years ago into a cash surplus with large cash reserves:

Two years ago, projections of a $47 million annual deficit sent Indianapolis' sports and convention board begging for help.


Now a financial turnaround -- aided by boosted tax revenue and ongoing cost-cutting measures -- has left the Capital Improvement Board flush with cash reserves and a budget well into the black. A report released Monday shows that as of November, in the most recent figures available, the CIB's budget for 2010 was running an $11.5 million surplus.

The CIB's budget had forecast a $5.2 million deficit by that point -- meaning, officials say, that the board's financial position is actually $16.7 million better than expected.

For CIB officials, who have come under fire for giving millions to the Indiana Pacers and other controversial decisions, the prospect of financial stability, at last, brings relief.

"I feel like we're in a position to self-determine what the future looks like," CIB President Ann Lathrop said, adding that a strategic plan is in the offing this year. "(Gaining) stability is probably the biggest change we've had."


The CIB operates the Indiana Convention Center and the city's professional sports facilities.

Perhaps the strongest indication of its financial strength is its cash reserves, which stand at $62 million, according to Dan Huge, the CIB's chief financial officer. In May 2009, reserves had fallen to $26 million, their lowest recent level.

But don't expect to see any money returned to taxpayers.

Huge and Lathrop said their lesson from the crisis is that the CIB's heavy reliance on hotel and food and beverage taxes -- which take a hit during a recession -- requires deeper reserves. That will help ensure a strong bond rating for the CIB's debt, they said.

Lathrop said 40 percent to 50 percent of the operating budget -- set at $73 million in 2011 -- is the new minimum she hopes to maintain in reserves. The excess in there now is needed for upcoming expenses and to guard against uncertainty, she said.

"It's important to remember that our revenue is basically at 2007 levels," Lathrop said.

Murray's story glosses over the fact the CIB is borrowing $27 million from the state at the same time it says it has a cash surplus of $11.5 million and cash reserves of $62 million. "It also recently received a $9 million loan from the state that was part of a rescue package approved by state legislators during the 2009 session," Murray writes. "Lathrop said CIB officials opted to take the state's loan last month at a low interest rate to provide more budget cushioning." News reports at the time the CIB approved taking out the first installment of the $27 million loan authorized by the state bailout legislation quoted Lathrop as saying the CIB had no immediate need for the money, but if it failed to approve the loan by the end of 2009, it would lose out on the opportunity to borrow the money. I guess you could say it's sort of like a homeowner taking out a second, line of credit mortgage when he or she refinances their principal mortgage just because it's made available to them whether they need it or not. Meanwhile, the library, parks, IndyGo and other city agencies providing basic services face major budget cuts. It's more important to take care of those billionaire sports team owners first you see. We could write a book on all of the misrepresentations CIB officials have made to the public about its financial picture over the past several years, but it's become pointless. Indy taxpayers need to just come to the realization that the CIB, unlike other governmental bodies, lives and operates in Fantasyland where no dream goes unfulfilled.

Vane Is Not The Issue

It isn't often that I question a reporter's coverage of an ethics issue involving former public officials, but I will take issue with a story WTHR's Mary Milz did tonight questioning the ethical propriety of the CIB awarding a $36,000 a year communications contract to former Ballard communications chief Robert Vane. According to Milz, Marion Co. Democrats are questioning the contract:

Some people are raising questions about the Capital Improvement Board's latest hire. The CIB, which runs the city's sports venues and convention center, recently signed a one-year contract with Robert Vane to handle its media and communications for $3,000 a month.


Vane is Republican Mayor Greg Ballard's former Communications Director. After two years with Ballard, he left in November to start his own communications firm.

One of his first contracts is with the CIB.

"It was my decision and I approached him," said CIB President Ann Lathrop.

Lathrop said she didn't interview anyone else. She didn't have to.

"I think he's uniquely qualified with his knowledge of the issues related to the CIB and I wanted someone able to hit the ground running," she said.

But Democrats argue it doesn't pass the smell test.

Adam Kirsch, a spokesman for the Marion County Democratic Party, said Vane knows the CIB issues "because taxpayers paid him to do it for many years and now they're paying him in the private sector."

Kirsch said the deal violates the mayor's ethics rules - the part prohibiting former employees from seeking work on matters which they "personally and substantially participated."

Kirsch said Vane "spoke on behalf of the CIB several times, he spoke on the Pacers deal. He clearly dealt with the CIB which is what the ethics policy contemplates."

Former corporation counsel under Mayor William Hudnut, Sheila Kennedy, agrees awarding the contract to Vane did not violate any law or ordinance but thinks it "raises the appearance of impropriety because when people work for the city they work for us and we have a right to expect they're devoting their talents to the public issues." Kennedy adds, "Something like this also raises the appearance they're feathering own nest while purportedly doing the public business and that's why there are ethics rules all over, trying to avoid exactly what this appears to be."

Kennedy is right to raise the "feathering one's own nest" issue in the context of former government employees leaving their public positions to accept jobs directly related to the public work they performed, but the issue is misplaced with Vane's situation. Vane did not hold a policy-making position with the city; he essentially served as a public relations flack for the mayor, a role he is now performing as an independent contractor in the private sector. If Milz or the Democrats wanted examples of people working in the Ballard administration using their positions to land lucrative jobs in the private sector that were directly related to their government jobs, they need not look far. There are plenty of examples.

Ballard's chief of staff, Paul Okeson, took a government relations job with a major city contractor and campaign contributor to Ballard's campaign, Keystone Construction. Kevin Taylor left his job running the Indianapolis Bond Bank to work for City Securities, which has performed work on a number of public finance matters for city-county government. Former Deputy Mayor of Economic Development Nick Weber went to work in government relations for Baker & Daniels, which represented a number of businesses awarded economic development incentives while Weber was employed by the city. And then there's former DPW employee Kyle Walker, who left his city job to work for a consulting firm that does business with his former employer.

In each of those cases, the former city workers were in a position to make policy decisions that directly benefited their future employers. How do we know they didn't take actions in their government positions in consideration for obtaining a lucrative job with their new employers? That is precisely the reason the public must demand and expect tough revolving door laws that prevent government officials from acting out of self-interest to land new jobs in the private sector. I don't recall Milz or any other member of the local news media raising questions about any of those individuals and whether their new employment violated the city's ethics ordinance. Robert Vane did not make policy decision regarding the CIB while working for Mayor Ballard as his communications director. Paul Okeson did. He then went to work for a firm that submitted a bid as part of consortium seeking to manage the CIB's facilities as a result of an initial decision by Mayor Ballard to put out for bid the management of the CIB's facilities. Ballard even appointed Okeson to the CIB. The administration later abandoned the privatization initiative, but the ethical issue was pronounced and nobody in the media asked any questions about it.

Don't get me wrong. The media should be asking tough questions about these no-bid contracts. The real issue with the CIB's contract with Vane to the extent there is one is whether it is fiscally prudent. Is Barney Levengood or another member of his staff incapable of fielding media inquiries on behalf of the CIB? Is this a more efficient way of covering those duties than employing a full-time staff person? WRTV had a story the other day questioning the decision of Wayne Township Trustee Andy Harris, a former Ballard employee, to hire Aaron Williams for a $65,000 a year job as communications director. Williams is a former employee of the Public Safety Department and son of Deputy Mayor Olgen Williams. Does a township trustee really need a full-time communications director? Can't the trustee speak for himself? We've certainly seen many examples of governmental entities and school districts awarding public relations contracts to outside firms that stretch fiscal credulity. I'm not certain the contract awarded to Vane is as bad as many of the other examples that are easy to find.

CIB Board Member Takes Job In Washington, D.C.

An observant citizen brought to my attention the fact that one of Mayor Greg Ballard's appointees to the Capital Improvement Board, Jay Potesta, has taken a job in Washington, D.C. and is no longer residing in the City of Indianapolis for all practical purposes. I was surprised to see the address of Jay Potesta and his job in Washington with the Sheet Metal Workers' International Union listed on the CIB's website.

MEMBER

JAY K. POTESTA
Assistant Director of Governmental Affairs
Sheet Metal Workers’ International Association (SMWIA)
1750 New York Avenue, NW
Washington, DC 20006
(Local Mailing Address: 1427 Mahony Court (4217-7474)
Current Term: 01.15.10 – 01.14.12

Last year, news reports of the CIB meeting where a $33.5 million give-away to the Indiana Pacers was approved indicated Potesta was not in attendance. It must be kind of hard making meetings during the week in Indianapolis when your full-time job is located in the nation's capital hundreds of miles away. Board minutes indicate Potesta missed four of the eight board meetings between April and November of last year. It's extremely insulting that our mayor cannot find residents of our city who live and pay taxes here to serve on important boards like the CIB. You may recall he insulted residents by appointing an out-of-state radio talk show host to serve on a board that advises him on public safety matters.

More Lies From The CIB

Once again, the CIB lied to the City-County Council and the public to extract more of our tax dollars for their budget. CIB President Ann Lathrop, a former city controller, is now saying the CIB is magically running ahead of budget by $12 million despite its claimed urgency earlier this year in having $8 million a year diverted from a downtown TIF district it said was critically necessary to continue funding of the ICVA. Everyone with any common sense knew the real reason for the diversion of property tax revenues to the CIB was to help fund the 3-year, $33.5 million give-away to billionaire Herb Simon and his Indiana Pacers. Now it turns out the CIB's budget this year is running $12 million ahead of where it told the City-County Council it stood when it insisted it needed the $8 million diversion from the downtown TIF district. The IBJ's Scott Olson reports:

The Capital Improvement Board of Marion County is running $12 million ahead of budget, due in large part to higher revenue and fewer expenses than members expected.


Through the first nine months of the year, the most recent budget numbers available, CIB posted $67 million in total revenue—$6.5 million more than budgeted—and trimmed $5.8 million in expenses.

A large chunk of the revenue, $4 million, is part of $8 million CIB received from the city to use toward the $10 million it will provide the Indiana Pacers to help operate Conseco Fieldhouse. Overall, CIB will give the team $30 million over the next three years.

Still, CIB President Ann Lathrop is satisfied with the agency’s financial situation, particularly since it spent most of last year wrestling with a $47 million budget deficit. CIB will meet for the last time this year at 3 p.m. Monday in the Indiana Convention Center board room.

“I think our revenues are trending higher,” she said. “Even if you take out the $4 million, we’re still trending ahead.”

If you back out the $4 million the MDC already transferred to the CIB from a downtown TIF district to fund the ICVA, that still puts the CIB's budget $8 million ahead, which is the exact amount it requested for the ICVA. According to Olson's story, the CIB collected about $1 million more in food and beverage taxes than it budgeted, and it received $1.3 million more than it budgeted from the expanded Professional Sports Development Area, which was part of a combination of tax diversions, tax increases and borrowing the CIB incurred to avert what it claimed was "a going concern problem" just last year. Olson also reports county admissions tax revenues were close to $1 million more than the CIB had anticipated. So the CIB underestimated its revenues by more than $3 million. Does anyone believe that was not intentional?

I don't know how many times the City-County Council will allow the corrupt leadership of the CIB to pull the wool over its eyes to extract more of our tax dollars before it finally says enough is enough. The CIB's total budget for next year, which the council has already approved, is $104.4 million, an 11% increase over this year's budget. Olson says the CIB thinks hotel and food and beverage tax receipts could climb 3% to 6% next year because of the additional business the CIB anticipates from an expanded convention center. The CIB continues to heavily subsidize out-of-town conventioneers in order to lure business to the city. "The downside is that CIB can’t bill a convention for the use of extra help, which shows up in its budget as an $863,878 shortfall through September in labor reimbursements," Olson writes. “There are still extreme price pressures out there to make the city competitive [to host a convention],” Lathrop said. “There’s just a lot of deal-making going on right now.”

More On Property Tax Revenues Now Flowing To The CIB

The Star's Jon Murray picks up on fellow blogger Pat Andrews' recent blog post complaining about an interlocal agreement between the Metropolitan Development Commission and the Capital Improvement Board allowing property tax revenues derived from a TIF to flow to the CIB to the tune of $8 million a year, the first time in the history of the municipal corporation that it has been funded with property tax dollars. Likely Democratic mayoral nominee Melina Kennedy quickly picked up the fumbled ball from Ballard and ran with it:

On Thursday, Democrat Melina Kennedy, who is seeking to challenge Mayor Greg Ballard in next year's election, cited the transfer to the CIB -- set to recur each year -- as Exhibit A of what she considers misplaced priorities.


Other critics have pointed out that the move came as the improvement board has begun sending the Pacers three annual $10 million payments to help pay for operating Conseco Fieldhouse. The CIB also will pay for $3.5 million in arena improvements.

Kennedy spoke before a board meeting of the Indianapolis-Marion County Public Library. The library plans a 26 percent reduction in hours starting Oct. 3 to help close a $4 million shortfall.

"I'm still in shock that the mayor would divert tax dollars to fund the CIB while, at the same time, he's allowing libraries to close," said Kennedy.

Other city-county agencies are facing across-the-board cuts as local income tax revenues plummet and others face reduced property tax revenues because of the state's property tax cap law. Those revenue sources may be off as much as $80 million during the next budget year. City Controller David Reynolds tells Murray the Ballard administration just happened to find this unused pot of money and said, "What the hell, let's give it to the CIB:

City Controller David Reynolds said the TIF money was "over and above" what the development commission needed to meet its TIF obligations, and the visitors association supports Downtown economic development.

The CIB's story is the money was needed to provide a steady stream of revenues for the ICVA despite the fact that it already has that in the form of the food and beverage tax and hotel tax revenues that flow to the municipal corporation each year, on top of the additional car rental tax revenues and the state revenues from the sports tax development area downtown. And then there's that $27 million the CIB is borrowing from the state over a 3-year period. Pat Andrews is correct in her assessment the money is simply being diverted as a way of paying for the $33.5 million give-away to the Indiana Pacers. The CIB's Ann Lathrop responds:
 

"This is a way for us, at a minimum, to say, 'You're going to get $8 million,' " Lathrop said.
 
"It's not a way to make it easier to find money for the Pacers," Lathrop said. "It allows us to provide a balanced budget as it relates to everything the CIB does."

Yeah, right. Just one more promise broken by Mayor Greg Ballard. Let's not miss any nails as we tighten down the lid on his political coffin. And while we're on the subject, does anyone else recall that press statement Ballard released where he promised to find money for the libraries to avoid service reductions? So he found money for the CIB, which already benefited from additional revenues from three sources, including a state tax diversion, a local hotel tax increase and new borrowing from the state of Indiana. He still hasn't found any money for the library board, which plans to seek an increase in our property taxes now and just announced a decrease in the hours of operations for library branches. His administration has basically given the green light to both the library and IndyGo to seek property tax increases to fund their operations while he uses this pot of property tax money to fund the CIB with even more money to fund advertising efforts that benefit only a handful of downtown hotels and restaurants. A nice set of priorities you have there, Mayor Ballard.

Property Tax Revenues Flow To Fund CIB For The First Time In Its History

No longer can Mayor Greg Ballard cling to his claim the Capital Improvement Board is funded entirely with dedicated revenue sources unrelated to property taxes. Because of a secretive interlocal agreement (drafted by Barnes & Thornburg) his administration entered into earlier this month between the Metropolitan Development Commission and the CIB, an agreement completely ignored by our local news media, property tax revenues to the tune of $8 million annually are now dedicated to the CIB. As Pat Andrews of Had Enough Indy explains:

With this agreement, property tax dollars are now flowing to the CIB. These are new dollars. They amount to $8 million per year on an ongoing basis. The only new expenses of the CIB are the operation of the expanded convention center and the $10 million cash gift to the Pacers. It is completely reasonable to connect these dots and see property tax dollars flowing from the City of Indianapolis to the Pacers.

These property tax dollars could be used to pay off the bond obligations of the TIF district early, or to promote $8 million in new projects. Such a project could even include upgrading parking meters in the downtown area.

But, no. The Pacers are given higher priority by Mayor Ballard, than being fiscally responsible in paying off debt, or fiscally responsible in crafting an upgrade to the parking meter project, or underwriting some other deserving project in the downtown area that would actually make Indianapolis a better place to live. The Council should reject the $10 million gift in the 2011 CIB budget and let the CIB and MDC unwind this agreement.

By the use of this shell game, the Ballard administration gets to use property tax revenues to fund the CIB, which has no statutory property tax levying authority. This diversion of property tax dollars comes at the very same time the library is reducing hours of operation for the library branches to close a budget gap, the parks department has been closing public pools and reducing the season of operation for others and city-county agencies across the board have been asked to implement 5% budget reductions due to fewer income and property tax revenues projected to be available for the 2011 budget.

People need to fully grasp the ramifications of funneling property tax revenues to the CIB through the backdoor. The Ballard administration has been completely disingenuous from day one to the taxpayers of this city concerning its funding of the CIB. We have raised taxes for the CIB, we have obtained additional state funding for the CIB and we've borrowed money from the State of Indiana to fund the CIB. Now we're diverting property tax revenues intended for an entirely different use to fund the CIB. It is now abundantly clear the Ballard administration will stop at nothing, including breaking every campaign promise he made as a candidate in 2007, to put funding for the CIB ahead of all other city-county agencies. It is also pathetic that news of this, like so many other budgeting and policy-making decisions of our local government, must be brought to the fore by citizen bloggers. The news media refuses to do its job and simply regurgitates nearly word-for-word the talking points handed to them by the Ballard administration whether it's the transfer of our city-owned utilities, the leasing of our City's parking meters or the nonstop shell game financing of the CIB. The citizens of this community must never let Mayor Ballard forget the fundamental breach of trust he has committed with the taxpayers of this community: Read his lips. NO PROPERTY TAX REVENUES WILL BE USED TO FUND THE CIB.

In light of the Ballard administration's push for its one-sided parking lease agreement in favor of ACS, a key point Pat Andrews makes in her blog post should not be overlooked. As she notes, $8 million is pretty close to what the Ballard administration says ACS will invest up front in new high-tech parking meters it will operate at great profit to the company over the 50-year life of its lease agreement. The Ballard administration claimed the City lacked a funding source to purchase new meters itself and could only acquire meters with the latest technology by entering into this long-term lease with ACS. Now we know the Ballard administration had a source of funding for those high-tech meters; it simply chose to use that money to fund the CIB instead of investing in city-owned high-tech meters that could generate a significant amount of new revenues for the City without giving away the store to ACS.

Taxpayers Purchase $1.6 Million Ribbon Scoreboard For Billionaire Simons

Times are tough for the billionaire Simons. Their poor Pacers team has cost the family $200 million in losses over the past decade, or so they say--almost as much as taxpayers spent to construct the Conseco Fieldhouse the franchise just had to have in order to remain competitive in the NBA. Although the team pays no rent to use the Fieldhouse and gets to keep all of the revenues from game and non-game events held at the venue, Mayor Greg Ballard and his Capital Improvement Board made the determination we needed to help the struggling franchise out with another $33.5 million in taxpayer subsidies over the next three years.

Today, the CIB announced it was purchasing a $1.6 million ribbon scoreboard just like the one Jim Irsay's Colts have at Lucas Oil Stadium. Rick Fuson of Pacers Sports & Entertainment boasted the new ribbon board would allow the team to earn additional revenues from scrolling advertisements. Our public schools suck, our parks department keeps closing public pools and our library board is struggling to find sufficient revenues to avoid closing libraries, but as long as the sports teams have all that their hearts desire we'll be a world class city so goes the meme. It's worth noting the Indianapolis Indians minor league baseball franchise purchased their own digital score board this past year as a way of generating additional advertising revenues for the team, which turns a profit year after year without taxpayer subsidies.

What's The Truth Behind CIB's New Budget Numbers

The IBJ's Scott Olson had a story last week discussing a proposed $10 million increase in the CIB's proposed budget for 2011 over the current year's 2010 budget. That happens to match the amount of the first of three $10 million installments over the next years the CIB is giving to the Indiana Pacers because billionaire Herb Simon claims the franchise is losing so much money he can no longer afford to operate the team here withou additional public support. The CIB's President Ann Lathrop insists the $10 million in higher spending for next year is not the only reason the CIB plans to spend $73.1 million next year. A point I would make is that the first $10 million installment to the Pacers has already been paid out of the 2010 budget, and when the City-County Council approved the current year's budget for the CIB, it insisted there was no money in this year's budget to give to the Pacers. The CIB did, however, get approval from the City-County Council to raise the hotel tax in order to get an extra subsidy from state income and sales tax revenues from an expanded downtown sports area district, and it got approval to borrow $27 million from the state in three, $9 million annual installments. The CIB took elected to take that first installment late last year, even though Lathrop stated at the time the CIB didn't need the money. If we don't borrow it, she said, the CIB would lose the right to access those borrowed funds.

According to Olson's story, Lathrop attributed another $5 million in higher budget costs to improvements to Conseco Fieldhouse and other CIB facilities. "Instead, she pointed to $3.5 million in other improvements to the Fieldhouse, which is operated by the CIB, as well as $1.5 million earmarked for renovations and repairs to other buildings it owns," he writes. I'm sorry, Mr. Olson, but the CIB does not operate the Fieldhouse. Under the terms of a long-term lease, the Pacers are responsible for operating and maintenance expenses on the Fieldhouse because it gets to keep all of the revenues generated from it, including both game and non-game events; the CIB is not responsible for operating the Fieldhouse. The Pacers have also been allowed to keep parking revenues that are supposed to belong to the CIB. As part of the 3-year, $33.5 million give-away to the Pacers approved by the CIB earlier this summer, the CIB agreed to pick up $3.5 million in improvements to the Fieldhouse it otherwise was not legally obligated to cover. It seems the Pacers are dissatisfied with its current 10-year-old scoreboard above center court and wants to replace it with a brand new digital scoreboard.

Olson also notes the expanded convention center is expected to cost another $1 million in higher utility costs. Nonetheless, Lathrop tells Olson the CIB will balance its budget through "a combination of cuts and anticipated increases in revenue from hospitality and food and beverage taxes." Personnel costs are supposedly going to decline $3 million due to budget cuts. I've previously noted the CIB eked out most of its personnel cost reductions by significantly reducing the amount of temporary staffing it has been employing in the past. Of course, the only reason the CIB can really afford to spend an additional $10 million next year is because it is borrowing another $9 million from the state. How it plans to repay the full $27 million loan to the state is any body's guess at this point.

Perhaps the most important point Olson makes in his report is buried near the end of the story. "In addition, the Indianapolis Convention & Visitors Association is slated to receive $8 million from the CIB next year," Olson writes. "Unlike previous years, that the money will not come from CIB revenue but from downtown-development funds."The CIB typically funds about 70 percent of the ICVA’s budget." What are those "downtown-development funds"? And does that mean the CIB's budget is actually increasing by $18 million instead of the $10 million advertised by the CIB? Pat Andrews at Had Enough Indy asks that latter question. The Indianapolis Times blog builds on the point Pat makes with a discussion of how those funds come from a downtown tax increment financing (TIF) district. Yes, that would be property tax revenues. The blog explains the importance of this change in funding:

Is it coincidence that the $8 million in taxpayer money earmarked from the ICVA just about equals the amount of money for the coming year that the city has promised to pony up to bail out the Indiana Pacers?


If you remember, it was Mayor Greg Ballard who insisted that not a dime of taxpayer money would be used to bail out the Pacers and its billionaire owner.

While I have no doubt that the mayor will continue to insist that no taxpayer money is being used to help the Pacers, I think it would be safe to assume that the only reason the CIB is spending $8 million in your tax money on the ICVA is because of its obligations to the Pacers.

The CIB has funded the ICVA for years, but the the CIB has never had access to TIF funds, and has always funded the ICVA with a portion of its own revenues. There's only one reason that the CIB is now using TIF proceeds to fund the ICVA -- because it's short the $10 million it gave the Pacers.

The CIB, Mayor Ballard and administration officials will vehemently deny using property taxes to fund the Pacers, but the point here is that if those million of dollars hadn't gone to the Pacers, the CIB wouldn't need access to your tax dollars to fund the ICVA.

The mayor promised not to use tax dollars to bailout out the Pacers, so like any screwed sidewalk shill he's playing a shell game with your tax dollars.

The Indianapolis Times is absolutely correct in its assertion that the CIB's budget is nothing more than a shell game, just like it always has been. There is always more to its numbers than meets the eye. Yes, Greg Ballard lied again. The CIB didn't have the money in this year's budget to give to the Pacers so it tapped a property tax revenue-related fund to provide funding to the ICVA for the first time so it could afford to give away money to the Pacers, and it still had to borrow more funds from the state even with those additional property tax revenues. Our property tax dollars are being used to give money to billionaire Herb Simons' Indiana Pacers and support the CIB notwithstanding Ballard's assertions to the contrary. That's a fact you won't read in the mainstream news media reports.

UPDATE: Don't miss this story if you're a property taxpayer. It looks like the library board and IndyGo may file appeals to allow them to hike property tax levies next year to meet budget shortfalls. Although the boards are comprised of persons appointed by the mayor and the council, watch for politicians to distance themselves from the actions of those boards if property tax increases do occur.

UPDATE II: The rubber stamp members of the CIB approved the budget without asking any serious questions. Of course this is how it goes. They are part of the corrupt organized crime ring that runs this town, and they're all making money at your expense and laughing all the way to the bank. And to David Shane, you have proven yourself to be a totally worthless member of the CIB. I should have known better than to expect more from you.

UPDATE III: Here's some more details on the CIB's proposed budget. The CIB is passing out grant money to the Arts Council and the Indiana Sports Corporation. The Arts Council will get $300,000, while the ISC will get $150,000. The grant to Black Expo is being restored, notwithstanding the harmful economic impact this organization's summer celebration is increasingly having on downtown businesses. There is also a $150,000 cultural tourism matching grant in the budget. The CIB will spend $100,000 more on the Colts game day expenses next year. The CIB plans to spend $800,000 to pave that gravel parking lot at the site of the former Market Square Arena it has had a variance to operate for a number of years. No sinking fund is being established to repay the state loan. The CIB is relying heavily on the inter-local agreement for downtown development dollars (TIF revenues) as a permanent way of funding the ICVA as noted in the story above. It's budgeting at its worst when you consider how much other vital city budgets are being cut to deal with an anticipated revenue shortfall next year. We're going to wind up spending nearly 10% of what we spend on all other city services on the CIB's budget. The CIB's budget in 2011 will actually be 25% higher than it was in 2009, jumping from $84.7 million to $104.4 million. Absolutely incredible.

More Ballard Lies On $33.5 Million Gift To Herb Simon's Indiana Pacers

Mayor Greg Ballard has turned into one big fat liar. He pens a column in the Star (this will make I believe the 10th pro-Pacer subsidy opinion column that has appeared on the Star's editorial pages compared to zero columns opposing additional subsidies) to defend his decision to give $33.5 million to billionaire Herb Simon and his Indiana Pacers. The column is filled with outright lies and half truths.

He begins in his column by stating, "Most importantly, the agreement accomplishes all this without any additional tax increases." Come again, Greg. Didn't we just hike the City's hotel tax last year to one of the highest in the nation to raise more money for the CIB? Aren't we siphoning off additional state income and sales tax revenues for the CIB that could have gone to schools and other basic government services? And isn't the state loaning the CIB $27 million over three years when the State Treasurer is telling us that more than half of the State's surplus disappeared over the last year and will disappear entirely if state revenues don't start picking up?

Ballard thinks the "Downtown economic engine" is the end all, be all for the City of Indianapolis. He continues to make this argument while factories in the City continue to shutter, putting thousands of well-paid workers out of jobs and our best employer, Eli Lilly, is laying off thousands of employees as part of a downsizing effort. Whatever contribution the Pacers make to a few businesses downtown, it pales in comparison to the many businesses outside the immediate downtown area that really drive the economic engine of the City. Strangely, Ballard claims the give-away to the Pacers is necessary "to save jobs and grow our economic base." What planet is he living on? Does he really think the Pacers are a critical component of the City's economic base?

Ballard claims in his column that "none of the money is going to fund team operations or salaries." He simply cannot say that. He doesn't have access to the financial records of the Pacers that would prove or disprove how the money is being spent. As I noted yesterday, testimony in the Mel Simon family feud court debate over who should manage his estate mentions a $46 million loan that Mel had taken out for the team prior to his death that that Herb agreed to assume as part of a buy-out  agreement of Mel's interest in the Pacers he reached just months ago. How do we know that Herb isn't going to use that money to pay off that loan?

Ballard makes another disingenuous claim of the fallout if the Pacers left. "If the Pacers left, the taxpayers would shoulder the entire $15 to $20 million per year to operate the building and jeopardize our ability to make the $18 million annual debt payment." First of all, could Ballard have not nailed down exactly what those operating costs are annually on Conseco Fieldhouse before inking this deal? At first, the Simons claimed the costs were $15 million a year. They later increased that number to $18 million. Now Ballard is telling us they range anywhere from $15 to $20 million. That's a 33% variance and is further proof Ballard made no attempt to learn the actual costs of running Conseco Fieldhouse. I've heard several building management experts doubt that the annual costs are actually that high. I'm told $10 million is a more believable number, and that's probably on the high side.

What Ballard conveniently leaves out of his analysis of the impact of the Pacers leaving is the fact that the City would then get to keep all of the revenues Conseco Fieldhouse brings in from concerts, circuses, religious gatherings, conventions and other sporting events. Further, the costs of operating the fieldhouse are likely to be much lower if the Pacers and Fever no longer are playing there. The City will also get millions of dollars in parking revenues it has been giving up to the Pacers. More importantly, the Pacers would have been required to pay a penalty in excess of $130 million if it sold the team and moved to another city. Hell, the CIB could nearly retire its debt on the fieldhouse from the penalty payment.

Ballard credits downtown as being the catalyst behind "nearly $1 billion in sales tax revenues for the state, and tens of thousands of jobs" directly or indirectly related to the City's convention, hospitality and athletic activity. Previously, Ballard has tossed around a figure in excess of 60,000 jobs as being created by the downtown convention and sports teams. In fact, most of those largely low-paying service jobs are outside the downtown area and are not directly related to the convention or sports-related activities, although they collect a significant amount of the taxes that benefit those facilities exclusively.

On the revenue side, Ballard tries to make the case that $55 million will be lost to the local economy if the Pacers leave. That figure has been thoroughly discredited by any objective expert who has reviewed that useless study the CIB commissioned earlier this year to make the case for this huge taxpayer give-away. First of all, most of the players who are paid high salaries by the Pacers don't even live in Indianapolis. They spend their money elsewhere. As for the money spent on Pacers games, those are discretionary entertainment dollars that will be spent elsewhere. Jim Morris, CEO of Pacers Sports & Entertainment, suggests there would be no Indianapolis Symphony but for the Indiana Pacers. What is he smoking? The symphony would likely benefit if the Pacers left down and stopped draining away corporate donations from them. Individuals and businesses will still spend that money and other cultural, entertainment and businesses will reap the benefits from the shifting of those discretionary expenditures.

To Ballard, this government give-away to one of our state's wealthiest citizens is essential to preserving "our status as one of America's top tier status." For someone who was born and raised in Indianapolis, Ballard sure is ignorant about what actually raised the status of Indianapolis. It's called the Indianapolis 500, one of the largest attended sporting events held annually in our City. It was that racing event that put Indianapolis on the map and continues to contribute far more economically to the City of Indianapolis than the Pacers. And how much of our money have we given to the Hulman family to operate the world's largest and most prestigious auto racing track in the world? Zero. Not one penny.

UPDATE: Apparently Dan Carpenter shares my views about this give-away to the Pacers and the debate that has surrounded. He writes, in part, in his Sunday column:

The notion that Indianapolis--one time transportation hub, erstwhile jazz mecca, proud bearer of literary tradition and historical home of good jobs--was a poor cousin waiting all these decades for billionaire redeemers is part of a strategy called setting the terms of the debate . . .

For instance, there's no quarrel from the mayor's office or the business leadership that Herb Simon is losing money on the Pacers, that he can't draw from his other enterprises, that he can't massage his losses through tax accounting, that his costs for operating Conseco Fieldhouse are X. The taxpayers are an open book, while the for-profit beneficiary of public funds lets us take his word for it . . .

The economic value of a fair-sized factory is far greater than that of a sports franchise to a city, and the former is not without its intangibles as well . . .

So we're not Seattle. We're not New York or New Orleans. We're being asked to buy what they've got, and it's not available for any price, including the bargain rate of $33.5 million. I may not be telling you anything you don't know, but I certainly stand in violation of the terms of the debate. Mea culpa, mea culpa. Go Pacers, and I mean that.

The Ties That Bind Herb Simon's $33.5 Million Gift From The CIB To His Recent Purchase From Mel Simon's Estate

You won't want to miss out on this latest item the IBJ's Cory Schouten is reporting on the hearing taking place in Hamilton County to determine whether Bren Simon is fit to serve as the trustee of her late husband Mel's estate. I told you about how Herb Simon, Mel's brother, bought out his interest in the Indiana Pacers last year. According to court testimony today, however, the purchase of Mel's interest in the Pacers didn't get hammered out until this March right about the same time the Pacers were pressing the CIB to take over $15 million a year in operating costs for Conseco Fieldhouse, which the Pacers later claimed was actually $18 million. Here's what Schouten writes today:

Marrianne Schmitt Hellauer, an estate-planning attorney based in Baltimore who has worked with Bren for years, testified about detailed plans she helped develop for appraising the value of an estate likely worth $2 billion and the moves her legal team has taken since Mel died in September 2009.


Hellauer said Melvin's estate closed on a deal in March that transferred his stake in the NBA franchise to his brother Herb. A 2009 agreement between Herb and Mel called for Herb to take over full control within 90 days of Mel's death.

Closing on the deal took a bit longer as Herb sought out financing to buy out his brother's interest, Hellauer said. Herb had agreed to pay off a $47.5 million loan Melvin had taken out for the team as part of the deal.

Did you catch that? "Herb had agreed to pay off a $47.5 million loan Melvin had taken out for the team as part of the deal." Do the math on the $15 million in operating expenses the Pacers asked the CIB to pick up and the deal ultimately worked out. It comes out to $45 million over three years based on what Herb originally requested and later increased to $54 million over three years based on the $18 million figure the Pacers later claimed they incurred in annual operating expenses on Conseco Fieldhouse. In the final deal just announced this week, the CIB agreed to pick up at least $33.5 million in costs over the next three years, which has been characterized as a loan, but it is interest free and will be forgiven in its entirety if the Pacers stay put. That figure could grow to more than $38 million if the CIB winds up picking up additional capital improvement expenses on the fieldhouse over the next three years above the $3.5 million it has agreed to spend on a new digital scoreboard above center court. What do you want to bet Herb is using the money the CIB is giving him to pay off that debt owed by Mel?

No wonder the CIB raced to get this deal inked before these hearings began at the end of this week. They didn't want to give the public the opportunity to put two and two together. And after little debate today, the CIB rubber-stamped the backroom deal negotiated by Mayor Ballard with the billionaire Herb Simon on a 6-1 vote. This is government at its worst. Mayor Ballard has turned out to be public enemy number one when it comes to the taxpayers of Indianapolis. He is a total fraud who completely lied his way through the 2007 election by pretending to be someone he obviously was not. He and his family are enjoying tens of thousands of dollars in free gifts at our expense in consideration for all of our money he is stuffing in the pockets of his campaign contributors and cronies. I hope it's really worth it, Greg? How you can even show your face in public is beyond me.

I've maintained that the public has a right to know how much Herb Simon valued the Pacers' franchise when he agreed to buy out his late brother's interest recently. Forbes has pegged the value of the team around $300 million. The Simons purchased it for only $11 million in 1983. Why would Herb Simon want to own an entire interest in an NBA franchise that has supposedly lost $200 million over the last 10 years? It just doesn't add up. I've never believed those figures, and the public is denied access to the audited financial statements of the franchise, notwithstanding all of the public monies that have been spent to prop up their NBA franchise, that would indicate whether those claimed losses are anywhere near that amount. So while every other unit of government is facing severe cutbacks in their budget, the CIB, which claimed insolvency last year, now has a pot of money just sitting out there to hand to Herb Simon, which perfectly aligns with his buy-out of Mel's interest in the Pacers from his estate. As Bren Simon said, "Business is business is business." "There is no emotion in business." At least not when the public's interest is involved. And to think the Simons don't even like Ballard and supported his opponent, Mayor Bart Peterson, for re-election. And all it took was a snake oil salesman like Jim Morris (don't forget he's the guy who convinced the City to pay more than double the actual value of the water company and then walked off with an $8 million golden parachute agreement) and the Simons' lawyer, Bob Grand, who Ballard foolishly put in charge of the CIB despite his obvious conflict of interest and who laid the groundword for this deal, to win over the feeble-minded Ballard. What a sell out.

Did The CIB's Lawyers Get Too Clever With Herb Simon's $33.5 Million Gift?

The CIB's press release announcing a $33.5 million dollar deal with the Pacers to pay for $30 million in operating expenses on Conseco Fieldhouse over the next three years and pay for at least $3.5 million in capital improvements to the facility never mentions the word "loan." A careful reading of the proposed amendment to the Pacers' lease agreement with the CIB, however, tells something different. The $30 million to be paid out over three years is actually three separate interest-free installment loans over the next three years as spelled out in the proposed amendment to the Pacers' lease agreement. These series of loans could be forgiven in their entirety if the Pacers stay in the fieldhouse for the remainder of their long-term lease with the CIB under the terms of the proposed lease amendment. An observant reader of this blog, UniGov, points out the state constitutional prohibition found at Article 10, Section 6, which reads:

No county shall subscribe for stock in any incorporated company, unless the same be paid for at the time of such subscription; nor shall any county loan its credit to any incorporated company, nor borrow money for the purpose of taking stock in any such company;

A similar prohibition on loans to any incorporated company is found at Article 11, Section 12 for the state of Indiana, which reads:

The State shall not be a stockholder in any bank; nor shall the credit of the State ever be given, or loaned, in aid of any person, association or corporation; nor shall the State become a stockholder in any corporation or association. However, the General Assembly may by law, with limitations and regulations, provide that prohibitions in this section do not apply to a public employee retirement fund.

I've also reviewed the enumerated powers given to the CIB under 36-10-9-6, and I find no authority given to the CIB to make loans to private businesses. Here's the enumerated powers listed in the statute:

Sec. 6. The board may, acting under the title "capital improvement board of managers of __________ County", do the following:


(1) Acquire by grant, purchase, gift, devise, lease, condemnation, or otherwise, and hold, use, sell, lease, or dispose of, real and personal property and all property rights and interests necessary or convenient for the exercise of its powers under this chapter.

(2) Construct, reconstruct, repair, remodel, enlarge, extend, or add to any capital improvement built or acquired by the board under this chapter.

(3) Control and operate a capital improvement, including letting concessions and leasing all or part of the capital improvement.

(4) Fix charges and establish rules governing the use of a capital improvement.

(5) Accept gifts or contributions from individuals, corporations, limited liability companies, partnerships, associations, trusts, or political subdivisions, foundations, and funds, loans, or advances on the terms that the board considers necessary or desirable from the United States, the state, and any political subdivision or department of either, including entering into and carrying out contracts and agreements in connection with this subdivision.

(6) Exercise within and in the name of the county the power of eminent domain under general statutes governing the exercise of the power for a public purpose.

(7) Receive and collect money due for the use or leasing of a capital improvement and from concessions and other contracts, and expend the money for proper purposes.

(8) Receive excise taxes, income taxes, and ad valorem property taxes and expend the money for operating expenses, payments of principal or interest of bonds or notes issued under this chapter, and for all or part of the cost of a capital improvement.

(9) Retain the services of architects, engineers, accountants, attorneys, and consultants and hire employees upon terms and conditions established by the board, so long as any employees or members of the board authorized to receive, collect, and expend money are covered by a fidelity bond, the amount of which shall be fixed by the board. Funds may not be disbursed by an employee or member of the board without prior specific approval by the board.

(10) Provide coverage for its employees under IC 22-3 and IC 22-4.

(11) Purchase public liability and other insurance considered desirable.

(12) Make and enter into all contracts and agreements necessary or incidental to the performance of its duties and the execution of its powers under this chapter, including the enforcement of them.

(13) Sue and be sued in the name and style of "capital improvement board of managers of ___________ County" (including the name of the county), service of process being had by leaving a copy at the board's office.

(14) Prepare and publish descriptive material and literature relating to the facilities and advantages of a capital improvement and do all other acts that the board considers necessary to promote and publicize the capital improvement, including the convention and visitor industry, and serve the commercial, industrial, and cultural interests of Indiana and its citizens. The board may assist, cooperate, and fund governmental, public, and private agencies and groups for these purposes.

(15) Enter into leases of capital improvements and sell or lease property under IC 5-1-17 or IC 36-10-9.1.

It appears to me the CIB may be leaving itself open to a lawsuit challenging the "loan" to Herb Simon's Pacers. What do you think?

More On That $33.5 Million Gift To Herb Simon's Pacers

It's always fun taking a closer look at anything that comes out of the CIB. You always learn things upon closer inspection that were conveniently overlooked during the press briefings. This process began with the Pacers demanding that the CIB pick up its maintenance and operating expenses for Conseco Fieldhouse or the team might move to another city that appreciates them more. Free use of a nearly $200 million basketball arena constructed specifically for their use and getting to keep all revenues generated from the facility just wasn't cutting it. At first we were told those expenses were $15 million. As we grew close to the June 30th deadline imposed by Herb Simon for negotiating a new deal, that number suddenly jumped to $18 million. In the end, Herb settled for $30 million payable over the next three years in $10 million installments, plus a minimum investment of $3.5 million in capital improvements to the facility, which could actually grow to more than $8 million under the deal.

[As an editorial note, I want to point out that Councilor Robert Lutz, whose committee the CIB's bailout legislation passed through last year, assured people in attendance at a public hearing on that bailout that it did not include any money to give to the Pacers as part of any lease renegotiations. I would like to hear his explanation now about how the CIB could immediately commit us to the first in a series of $10 million loans to the Pacers if neither that bailout ordinance or the CIB's 2010 budget included money for this taxpayer give-away.]

The first thing I noticed when I looked at the proposed amendment to the lease agreement was the parties to the agreement. They include Pacers Basketball, LLC, Herb Simon and the Herb Simon Revocable Trust. Just as I earlier reported, Herb Simon did indeed buy out the interest of his late brother, Mel, in the Pacers franchise. Why is this important? Pacers Sports & Entertainment's CEO, Jim Morris, insists the franchise has lost $200 million since the team moved into Conseco Fieldhouse, losing money in all but one year since 1999. Why did Herb want to own 100% of a business that was supposedly losing so much money? Why didn't Mel's children or wife get their father's interest in the business? Forbes has valued the franchise at $281 million. Herb and Mel Simon bought the Pacers franchise for a mere $11 million in 1983. I think the handwriting is on the wall. Herb is trying to position the franchise financially to sell to an outsider rather than keeping it in the family, notwithstanding Morrison's claim that Herb is in it for the long haul, particularly since he's not so young any more at 74. If the public is being asked to subsidize the franchise to the tune of tens of millions of dollars more, I think the public has a right to know the facts surrounding this change in ownership.

The next point I would make about the $10 million a year, $30 million, three-year deal is that it is not characterized as a subsidy to the franchise. Instead, the lease agreement calls this a loan to the franchise. The first $10 million installment is being paid upon the execution of the amendment. The Pacers are giving up their lease termination rights through June 30, 2013 in consideration of the $30 million loan and the capital improvements the CIB agrees to undertake. The Pacers are given the right to serve notice of a lease termination on July 1, 2012 to become effective at the end of the 2012-13 season. The loans over three years to the Pacers are interest-free of course. Approval of the second and third installments on the loans payable in January 2011 and January 2012, respectively, however, are subject to the City-County Council approval. This is where it gets interesting. If the council refuses to appropriate the money for the loans, the deal is off as is the restriction on the Pacers' early termination of the lease.  But there's this kicker. Because the CIB intends to give the proceeds of the first installment of $10 million immediately upon the effective day of the amendment, that first installment loan is forgiven in its entirety if the City-County Council fails to approve the second and third installments on the loans. If the council approves the second installment but not the third installment, then the second installment loan is forgiven and the first loan is subject to repayment on a sliding scale basis as discussed below.

Without specifying the reason, the amendment says the loans are immediately to be repaid if the operating agreement is terminated; however, if the team is sold or the ownership of the assets is sold that triggers the CIB's right of first refusal to purchase the franchise, then the loan proceeds are payable at the closing of the sale or the transfer of the assets. The amendment states that repayment of the loan proceeds does not alter the CIB's rights to collect the penalty for early termination of the lease that is determined on a sliding scale basis. Currently, that termination fee is more than $130 million as I read the lease agreement; however, the CIB and Pacers are oddly figuring the penalty to be only about $20 million according to comments that have been made to the press. Why? The Pacers termination rights are rescinded by the lease amendment should they renege on their obligation to repay the loans.

The proceeds of the loan are to be used exclusively for maintenance of the fieldhouse according to the amendment. There is absolutely nothing in the lease amendment, however, that gives the CIB the right to audit the Pacers books to make sure those loan proceeds are being used for maintenance expenses and not salaries or other expenditures. At the conclusion of the 2013-14 season, portions of the loans will be forgiven on a sliding scale basis, starting with $2 million the first year, increasing to $3 million the second year, to $6 million each of the next four years and $1 million by the end of the 2018-19 season. After that, the loan repayment is forgiven in its entirety.

There is an interesting provision of the lease amendment that provides that the loan proceeds, although they may be forgiven in their entirety, cannot be considered "net cash flow" as that term is defined in the lease agreement. In other words, if the Pacers claim they are still losing money during the next three years, the $30 million loan proceeds will be excluded in determining the franchise losses. I'm not sure the IRS will view these so-called "loan proceeds" as non-taxable income, which they obviously will become at some point if they're not repaid, but we'll leave that to tax auditors to figure out.

The lease agreement contains another give-away to the Pacers. Under the original lease agreement, the Pacers were required to pay a lease fee for the use of the Virginia Street garage; however, the CIB says the Pacers have never paid a dime to the CIB in eleven years because of unspecified contractual offsets. The lease amendment makes the Pacers' use of this parking garage, as well as unspecified temporary parking spaces, free of use. What is the value of this give-away. Why aren't there more specifics about why the Pacers have been given free use of this parking garage taxpayers paid to build for eleven years?

The obligation to pay $3.5 million in capital improvements is a little more complicated to understand. At first blush, it limits that obligation to $3.5 million, but on closer examination you realize its $3.5 million, plus the additional amount of money the CIB receives from the state for the expanded professional sports district downtown established in 2009 that captures state income and sales tax revenues that are received as of the effective date of the agreement, including for taxable period prior to the effective date of the lease agreement. It's not readily apparent how much this amount is, but I understand it could provide for up to $8.2 million in capital improvements to the fieldhouse. I should also point out that the CIB has assumed several million dollars in capital improvement-related work on the fieldhouse that it was not legally obligated to pay under the current lease agreement.

The amendment takes disputes arising out of the amendment that would call for specific enforcement not to be subject to the arbitration clause provided under the lease agreement, which means the CIB can go to court to enforce the terms of this deal.

This analysis does not discuss how the CIB plans to pay for the $33.5 million plus it gives to Herb Simon under this so-called bridge agreement. I've studied the CIB's financials and come to the conclusion that (a) the CIB will have to borrow the full $27 million from the state authorized by last year's bailout legislation for the CIB to pay for this deal; and (b) the CIB will have to raise taxes to pay back the loan from the state, in addition to more than $20 million in deferred loan obligations, unless the state forgives that loan. The CIB still has a window over the next two years to enact a tax increase on admissions to events at the CIB's facilities and car rentals. You can also bet that this bridge agreement will lead to more demands from the Pacers for further financial assistance through the balance of its original lease agreement, which doesn't end until 2019. Again, where will the money be found to pay post-bridge agreement? The CIB has learned nothing from its past expenses. Borrow and spend today, worry tomorrow.

As An After Thought, How Will We Pay For Simon's $33.5 Million Gift From Taxpayers?

The Star's Franseca Jarosz makes a stumbling attempt to discuss the day after the CIB announced it would pay an additional $33.5 million to billionaire Herb Simon's Indiana Pacers franchise over the next three years, so he wouldn't move his team to an imaginary city somewhere in America to accept an even better imaginary agreement than his team is already being offered by the City of Indianapolis, how we're going to pay for that subsidy. Jarosz takes a hard fall in her opening paragraphs:

Officials for the once-debt-ridden Capital Improvement Board -- which this past year went to the legislature for a multimillion-dollar bailout -- insisted Monday that the CIB can afford to give the Pacers $33.5 million to stay in town.

But to do so, CIB officials said, the agency must not only continue to live with its already deep budget cuts, but also come up with a way to increase revenue.

"Once-debt-ridden?" Come again, Francesca. Does she actually believe the CIB has reduced its debt in recent years. Quite to the contrary, the CIB's debt grew 10% last year, or $105 million, to nearly $1.2 billion. That additional debt included $16.2 million in short-term debt the CIB took on in 2009, which included a $9 million loan the CIB's Ann Lathrop at the time said wasn't needed, but the CIB should take the first installment of a potential short-term $27 million from the state anyway because it would lose it if it didn't take it before the end of 2009. The CIB's debt burden grew even as its revenues declined despite the infusion of revenues from a higher hotel tax and more state tax revenue sharing. Its tax-related revenues actually fell last year by $4.6 million from $129 million to $123 million. Its operating revenues derived from fees, parking lots revenues, concessions and reimbursements for labor grew from $19.8 million to $21.3 million, or about 7%. Combining their operating and non-operating revenues, the CIB actually experienced a $4.6 million decline in revenues.

Were those budget cuts really deep as the CIB claims and as Jarosz reports?  It depends on how you look at it. The CIB's total operating expenses did decrease by just under 10% in 2009, but some of those savings were achieved by deferring maintenance expenses and the biggest savings came from accelerating depreciation and amortization of the former RCA Dome that has since been demolished. The cuts in non-operating expenses of $25.8 million or 35% looks impressive at first blush. But on closer examination you discovery that over half , or $16.4 million, came about as a result of a one-time swap termination fee. Also, $1.2 million in Colts' game-day inducement payments ended in 2008, creating another big savings. The CIB also saved $21.5 million in 2009 by cutting grants to other agencies and the ending of amortization expenses related to the termination fee on the Colts old lease agreement. It's also important to note that the CIB's 2008 budget shot up nearly 20% in 2008 so spending in 2009 was still above the 2007 levels. And most of the savings the CIB claimed from salary reductions actually came from a big reduction in temporary staffing.

I guess what I'm trying to say is that most of the savings the CIB has claimed to date have been paper savings and not real long-term savings. Unless their revenue picture improves significantly the remainder of this year, which is not likely to happen, it's going to have to continue borrowing more money from the state and deferring the payment of other debts as it has done in the past to balance its checkbook. With the additional $33.5 million debt being taken on by the CIB to subsidize billionaire Herb Simon over the next three years, you can bet there will be a need for yet another tax increase before this is all done and said.

Jarosz' story claims the bailout approved last year helped the CIB avert a $47 million budget deficit. The CIB has a history of inflating its projected costs in order to get more money budgeted to it than it really needs so it can later brag that it came in under budget when the actual numbers come in below the earlier inflated numbers. I remain unconvinced that the CIB actually incurred an additional $20 million in operating expenses related to Lucas Oil Stadium after reviewing their statements. I also believe the Simons were inflating the $18 million it claimed it needed to operate and maintain Conseco Fieldhouse each year. It might turn out that the
$33.5 million we are giving Herb Simon over the next three years actually covers 100% of those costs. It wouldn't surprise me. That's the sort of games the CIB has played with the public for years when discussing financial costs to the taxpayers. I should also point out that the CIB discontinued having its financial statements audited in 2009 by an outside accounting firm. Instead, it is relying on the State Board of Accounts to give its seal of approval to its financial numbers, which it did in 2009 since nobody over there really knows how to perform what equates to an actual audit of financial statements. The State Board of Accounts did note the failure of the CIB to have executed contracts for legal services and certain other service contracts totalling about $1 million before making payments on them during the period reviewed.

And from the "I'm not surprised department," the incompetent editorial staff at the Star says the deal announced yesterday "should be taken by city residents as good news." Once again, the Star editors refuse to disclose their own conflict of interest when discussing the financial concerns of the Pacers and Conseco Fieldhouse. They tell us there is some bad news in yesterday's announcement. "The bad news, potentially, is that the Pacers can come back in three years asking for more," the editorial reads. No, they wouldn't do that now would they? "The bad news that is no longer news is that the CIB has had to make severe cuts in community programs not related to pro sports in order to accommodate the Pacers and Colts, and most of those losses are permanent," the editorial continues. Uh, news bulletin for the editors. The CIB was never established to fund community programs; its job is to manage our capital assets. Get that? "As the city turns its attention back to basic priorities, such as streets and libraries, it appears to have breathing room on an important if often aggravating front," the editors reassure us. Oh yeah, the job government was actually established to do and not to see how much we can subsidize billionaire sports team owers.

Enjoy Field of Schemes take on this latest handout to a billionaire sports team owner with the headline, "Indy to pay Pacers $33m over three years for no damn reason":

It's a couple of weeks late, but the Indiana Pacers have obtained their boodle: The city of Indianapolis has agreed to pay the Pacers $10 million a year for the next three years (plus $3.5 million for a new ribbon ad board, among other things) to play at Conseco Fieldhouse, the taxpayer-funded arena that the team plays at rent-free and keeps all revenues from. That's less than the full $15 million in annual operating costs — the Pacers' only arena-related expense — that the team owners said they wanted the city to cover, but not a whole heck of a lot less, especially considering that the Pacers' lease isn't actually up yet.


In exchange, the city gets a commitment by the Pacers to stay in town ... for three years. After that, the team could break its lease and leave town with a smaller penalty, which would dwindle to zero by 2019, the year that their lease is actually set to expire. I don't think the Indianapolis Star used my quote, but what I told their reporter was something along the lines of "This is a pretty crappy payoff for $30 million in government subsidies."

Of course the Star didn't use the blogger's quote during his interview with one of their reporters, "pretty crappy payoff for $30 million in government subsidies." It didn't fit the Star's meme that this deal was welcome news to Indianapolis residents.

Ballard Agrees To Give Billionaire Simons $33.5 Million

Billionaire Herb Simon would have been forced to pay Indianapolis taxpayers as much as $150 $138 million in penalties if he chose to break his long-term lease on Conseco Fieldhouse with the Capital Improvement Board, sell the team and move it to another city. Simon, who recently bought out his late brother Mel's interest in the Pacers before he died last year, won't have to worry about that. Mayor Greg Ballard has agreed to give the billionaire $33.5 million over three years instead. Yes, while the City's park's department is being slashed, pools are being closed, library branches are being threatened with closure and hours of operation are being cut for those that remain open, Ballard thinks the taxpayers can afford to give tens of millions more to one of the state's wealthiest men so he can make sure his young wife has the best that a materialistic life has to offer, while average people suffer through the worst economic downturn since the Great Depression.

For the past year, the Pacers have been making an extortion-like demand that the City pick up at least $15 million in operating costs each year for Conseco Fieldhouse, or they might move their team to another city, pretending like the huge penalty clause in their long-term lease didn't exist. From the beginning of the negotiations, Mayor Ballard, who has accepted more than $10,000 in free tickets to Pacers games since taking office in 2008 and collected thousands more from the Simons in campaign contributions, has said he would do whatever it took to keep the Pacers from moving. Despite the fact that the CIB doesn't have the cash on hand to pay the costs, Ballard will borrow $27 million from the state of Indiana to pay the Pacers $33.5 million over 3 years, including $3.5 million in capital improvements to Conseco Fieldhouse.  That figure could grow to $38 million if the CIB winds up making capital improvements of as much as $8.2 million under the deal, which you can bet it will if the Simons tell the CIB to replace the current scoreboard or whatever other new toy it wants for its rent-free arena. The Star reports on this outrageous give-away of taxpayer dollars to one of the state's wealthiest men:

The Indiana Pacers are staying in Indianapolis, but it will cost taxpayers at least $33.5 million over the next three years.

Leaving town?

The city and the Pacers are expected today to announce an agreement hailed by some as an important step in protecting the financial state of the city but criticized by others as a multimillion-dollar bailout of a professional sports team and its billionaire owner.

The deal comes after months of negotiations between the NBA franchise and the Capital Improvement Board, which operates the city's sports venues. It supplements the existing contract between the parties, which lasts through 2019.

The idea of providing money to a sports franchise has incited criticism by some, but city leaders insisted they have been tough negotiators. They didn't agree to cover the full operating cost of Conseco Fieldhouse, estimated at $15 million to $18 million per year, or the roughly $25 million in capital improvements the Pacers said were needed at the fieldhouse. And they locked in what they called an important addition to the Downtown economy for three years.

"The mayor has said we need to protect the taxpayer and we need to protect the tax base," said Robert Vane, deputy chief of staff and communications director for Mayor Greg Ballard. "This agreement does both."

Under the terms, control of Conseco Fieldhouse -- and revenues from all events there -- will remain with the team, but unlike the current contract, the city will chip in $10 million per year for fieldhouse operations for the next three years. The city also will pay at least $3.5 million for capital improvements at the fieldhouse, an amount that has the potential to increase by up to $4.7 million.

In exchange, the Pacers must stay in Indianapolis through the 2012-13 basketball season or pay back the entire $30 million. The team also would be on the hook for a portion of that $30 million if it left before its contract expired in 2019.

For example, if the team left in 2016, it would pay back $19 million; if it left in 2018, it would pay back $7 million. That would be in addition to the termination fees -- estimated at $20 million-- spelled out in the existing agreement.

If the Pacers stay through the end of their current contract, which ends in 2019, they would not have to pay any of the money back.

In a complete sell out to taxpayers, under the terms of the deal, Ballard has completely let the billionaire off the hook for the tougher penalties contained in the City's current lease in exchange for this 3-year agreement to remain in the City. Strangely, the City is interpreting the current penalty provision of the lease to mean only that the Pacers would have had to pay a penalty of $20 million to break their lease and move out of the City. The billionaire will face a penalty of no more than $30 million if he leaves before the end of the three years under the new agreement, and anywhere from $28 million to $1 million if the team leaves before 2019, the last year of the current lease, in addition to the $20 million penalty, for now.

The Simons have been miffed ever since the CIB negotiated a lease deal with Jim Irsay for Lucas Oil Stadium that allowed the billionaire Irsay free use of the new Lucas Oil Stadium, all game and non-game revenues it produces and the CIB picked up all operating and maintenance costs for the stadium. The Simons, who founded the largest mall owner in the world, Simon Property Group, were embarrassed that the pill-popping Irsay negotiated a more favorable deal than them. Their deal merely gave them rent-free use of a brand new sports arena and all of the revenues it produces from game and non-game events. Their rent-free lease agreement, however, required them to pay for the annual operating/maintenance expenses on Conseco Fieldhouse.

The Star's story falsely claims that the CIB found the money for this taxpayer give-away by cutting its budget. "For this year, the board's efforts to cut its spending and increase revenues have provided enough money to make the $10 million payment, said CIB President Ann Lathrop," the Star reports. "As of May, the CIB had brought in $3.8 million more in revenue than budgeted and spent $7.5 million less than budgeted."  In fact, the CIB can only pay this money to the Pacers because it has decided to borrow $27 million from the state under the terms of a bailout bill passed by the legislature last year that allowed the CIB to raise the City's hotel taxes to one of the highest in the nation and receive tens of millions more of state sales and income taxes from a designated sports district in downtown. The money from the state bailout approved by our City-County Council by a one-vote margin was needed because the CIB faced an inability to pay $20 million in operating costs on Lucas Oil Stadium. The CIB borrowed the first $9 million last year even though Lathrop said at the time the CIB didn't need the money. Now we know why the CIB borrowed money it didn't need. The CIB  has no means of repaying the state those borrowed funds and will likely ask the state for forgiveness of the loan, putting state taxpayers on the hook for the entire $27 million.

It is completely befuddling that the CIB never once demanded that the Pacers publicly divulge their audited financial statements to prove the team is losing money. The Pacers' Jim Morris has claimed the team has lost $200 million over the past 10 years. Yet that didn't stop the billionaire Herb Simon from buying out his brother's interest in the big-time losing team before he died last year. There has been no public disclosure of the terms of Herb's purchase of his brother's interest in the team. One can only conclude that Mayor Ballard was bought off by the billionaire team owners with free tickets and campaign contributions. Ballard promised to run a government that was transparent, more ethical and treated taxpayers more fairly, but after being elected, he has played one shell game after another with City finances, raised taxes and accepted gifts valued in the tens of thousands of dollars. Taxpayers should demand the IRS audit Ballard's tax returns and force him to pay taxes on any unreported, untaxed gifts or charge him with income tax evasion. Los Angeles Mayor Antonio Villaraigosa is under investigation for failure to report $50,000 worth of free tickets he accepted to attend various sporting and other events, including courside tickets to LA Lakers games. Mayor Ballard is often seen sitting in courtside seats at the Pacers home games. Ballard has refused to report or itemize all of the free tickets he receives to Pacers and Colts games on his statement of economic interest he files annually.

Fred McCarthy best sums of the sentiments of Indianapolis taxpayers in today's Star story. "I think we have gone so far overboard in subsidizing professional sports in this city that it's insane," said Fred McCarthy, a local political blogger and nearly 50-year Indianapolis resident. "I just think it's ridiculous that brilliant businessmen who have made themselves billionaires in the market, in the business world, can operate a business in a rent-free building and continue to lose money while they're doing it." Maybe that's because they're not really losing money, Fred. Think about that headline on today's front page of the Star again: "City Pays Pacers $33.5 Million To Stay." It could have read: "Pacers Pay City $50 Million To Leave" or some other figure correctly calculated under the lease's complicated penalty provision. I hope Herb's young wife enjoys the next new mansion he purchases for her on our dime.

UPDATE: Former IUPUI Professor Mark Rosentraub agrees with my analysis of the Pacers' true financial picture according to an IBJ report today, which reads, in part:

Pacers officials said they’ve lost money in 10 of the 11 years they’ve been in Conseco Fieldhouse, including about $60 million over the last two seasons. Though the CIB declined to grant the team the $15 million in sought for Fieldhouse operations, Lathrop said she agrees “100 percent,” with the Pacers’ financial disclosures.


“We’ve seen the audited financial reports, and we have no reason to believe that those are in any way inaccurate,” Lathrop said.

But sports economist and former IUPUI dean Mark Rosentraub is less convinced.

“I’m not sure how you can operate in one of the nicest facilities in the league essentially rent free, and be so far in the red,” Rosentraub said.

Rosentraub also pointed out that eight of those 11 years were during relatively economic robust times.

“If the CIB is so convinced in the accuracy of those figures, which happened during some very robust times for the city and the state, you’d have to ask, 'Is the conclusion that the Pacers can’t be operated profitably in this city?' If that’s the case, what could possibly change in two to three years to turn this thing around, or are we looking at a long-term situation of paying to keep the Pacers here?”

While Rosentraub said he thinks the Pacers and Conseco Fieldhouse are important components to a vital downtown, he said the CIB and Pacers should put all the financial cards on the table.

“The CIB is a public agency,” Rosentraub said. “If these numbers are real, what’s the hesitancy?”

One of the financial tricks the Pacers have pulled off with their NBA franchise is to break its operations down into two separate financial entities. Pacers Sports & Entertainment, LLC operates separately from the franchise, Indiana Pacers, LLC. One would have to see the audited financial statements for both entities to make any assumptions about how well the franchise is doing. As Rosentraub says, "If these numbers are real, what's the hesitancy [for their release]?" The story makes clear that there is no assurance the Pacers will remain after the end of this three-year period. You can bet that more subsidies will be in the offing if the City expects the Pacers to remain here.

UPDATE II: An online poll at the Star asking for public reaction to the deal gets a big thumbs down. Seventy percent of the respondents called the deal a corporate bailout as opposed to the small minority who thought the deal was a good public-private partnership.A similar poll taken by WRTV asking, "Do you think the Pacers deal with Indianapolis is good for the city," got a similar thumbs down. Sixty-nine percent of the respondents there said the deal was not good for the city. I was interviewed by both WRTV and Fox59 News to give my reaction to the deal. WRTV's quote from me: "What was the sense of urgency to the city negotiating a give-away to them when they would have faced a huge financial penalty to have broken the current lease?" asked Gary Welsh, founder and editor of political blog Advance Indiana. Here's Ballard's quote on the deal: "I was very open that I wanted to keep them here, obviously. So, I think we got that done while maintaining the viability of the CIB, and nobody's income taxes are being raised. Nobody's property taxes are being raised," Ballard said. "It's not coming out of the city budget. It's a separate pool for downtown development." Ballard's comments are extremely disingenuous. He would have you believe this money is not being paid by taxpayers when it fact it is. Most of the money will come from the $27 million the CIB is borrowing from the state, which are your tax dollars. Ballard had no answer on what will happen in three years. Ballard's press secretary makes a faulty argument when he says the City will be stuck with all of the expenses on Conseco Fieldhouse if the Pacers leave. What he neglects to mention is that all revenues would then belong to the City for concerts and other events held at Conseco, and there would be far fewer expenses associated with maintaining the facility if the Pacers left, not to mention the huge windfall the City would collect from the Pacers as a penalty for breaking up the lease. Under this agreement, the CIB will have to pay at least $3.5 million in capital improvements and possibly an amount in excess of  $8 million to install a new digital scoreboard and other wish list items of the Pacers.

Bond Swaps Cost Indianapolis $93 Million So Far

Indianapolis taxpayers have paid dearly for those risky bond swap agreements well-compensated financial advisers convinced our local bond bank to enter into. The IBJ's Cory Schouten has an excellent story in this week's edition that goes further in explaining what these deals were all about and what it has meant for taxpayers than anything we've seen to date in the local news media. Schouten's story tells us the City has incurred penalties of $93 million to date to unwind soured swap agreements and still has negative exposure to the tune of $65 million. The Indianapolis water company alone lost about $53 million, including a $46 million penalty to unwind the bond swap agreements it took out on about a half billion dollars in debt and another $7 million in professional fees. In all, the City had 17% of its bond debt tied up in swap agreements at one time. Schouten writes:

Wall Street bankers for decades sold municipalities like Indianapolis on debt instruments called swaps as a safe way to reduce borrowing costs and hedge against rising interest rates.


In reality, the swap arrangements were complicated bets that relied on a few seemingly reasonable assumptions: Interest rates would either stagnate or rise, and financial partners on the deals would remain strong. Both proved wrong, and taxpayers paid a big price.

Municipal units of the city of Indianapolis in 2009 paid more than $93 million in penalties to unwind spoiled swap arrangements. And city agencies including the Indianapolis Local Public Improvement Bond Bank and the Indianapolis Airport Authority still are saddled with swaps that sport a negative value of more than $65 million, an IBJ review of dozens of bond records found.

According to Schouten, the City relied on CDR Financial Products for most of its bond swap agreements, a company that is now facing federal fraud and corruption charges. "CDR, which earned at least $378,000 advising the Indianapolis Bond Bank on swap deals in 2005 and 2006, is accused of rigging bids on so-called guaranteed investment contracts, or GICs." Government agencies deposit proceeds from bond sales into the interest-earning vehicles until they need to spend the money," Schouten says. He was unable to learn whether the charges involve any of the deals CDR helped arrange for the City. At their peak use in 2005, the City had nearly a $1 billion in debt tied up in swap agreements, which included debt issued through the local bond bank and by the Indianapolis Airport Authority. Schouten explains how the deals were pitched to local decision-makers:

A city issues variable-rate bonds. Then it enters into a side deal with an investment bank that allows the city to pay a below-market fixed rate to the bank and collect variable-rate payments from the bank based on a common index.


Theoretically, the variable rate payments from the bank offset the variable rate payments the city pays to the bondholders, which are based on another short-term index specifically for municipal bonds. And, voila, the city gets to borrow at a lower, “synthetic” interest rate to build streets, stadiums, libraries and airports.

The turmoil in the financial debt market that began in 2008 turned the attractiveness of these deals upside down as Schouten explains. The large insurers of these transaction like MBIA and Depfa Bank, which insured the City's bond swap agreements, were downgraded by ratings agencies. “No buyers wanted bonds with their backing, so we had no choice but to unwind the contracts at a loss,” Daron Kintner of the local bond bank told Schouten. Kintner took over the bond bank when Kevin Taylor left to join City Securities, which also employs John Dillon, a former head of the bond bank and deputy mayor to former Mayor Bart Peterson. City Securities offered advice to the City on some of these deals. Another former bond bank head and city controller, Robert Clifford, now works for Umbaugh & Associates, which also advised the City on some of these transactions. This raises the question of whether we can trust the people our bond bank employs. Are they just biding time until one of the high-paid advisers offers them a job?

Schouten looked at board minutes of the bond bank during the 2005-06 period when several of these large deals got brokered. He said the board minutes were mum on the risk of bond swap agreements. A local expert tells Schouten he doubts that members of the bond bank understood what they were doing when they signed off on the swap agreements.

Public institutions like the bond bank should use certain tools to keep borrowing rates as low as possible, but making exotic bets on the direction of interest rates is not one of them, said Ken Skarbeck, managing partner of Indianapolis-based money management firm Aldebaran Capital . . .

Bond bank board members (all appointed by the mayor) who signed off on the instruments may have thought they were buying insurance to protect against rising rates, Skarbeck said, “but that turned out not to be the case as the swaps generated substantial losses when interest rates instead declined.”


“What strikes me is the complexity in these deals,” Skarbeck said. “I don’t understand them, I’m certain the bond bank people didn’t understand them, and the world now knows that the investment bankers who concocted and sold these things did not understand them.”

Disappointingly, Kintner tells Schouten that it is unlikely the City will take any action against any of its advisers for failing to appropriately advise it of the risk in entering into bond swap agreements. "
[Diana] Hamilton said she’s concerned by revelations about CDR Financial and wonders whether the company fleeced the city, Schouten writes. "But in general, she defends advisers who supported the swap arrangements," he continues. "Advisers on the waterworks deal included the local firms H.J. Umbaugh & Associates, City Securities Corp., Ice Miller and Baker & Daniels, as well as New York’s Bear Stearns & Co." Hamilton was singing a much different tune a couple of years back when these deals first soured. "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," wrote the IBJ's Anthony Schoettle then. “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.”  Hamilton, incidentally, owns Sycamore Advisors, LLC, a local WBE contractor. She is currently working as a subcontractor on the utilities transfer deal between the City and Citizens Energy. Her husband is John Hammond, a partner with Ice Miller, which also served as counsel on many of these bond transactions.

Schouten's story discusses how the local bond bank's staff of seven relies heavily on its advisers and often lack the experience and knowledge necessary to make informed judgments. A 2008 audit by Katz Sapper & Miller slammed the bond bank's staff. “During our audit, we found an overall lack of review and reconciliation in many areas of the accounting and finance functions,” the firm wrote. “We noted numerous instances where input was incomplete and journal entries and transfers between accounts were incorrect.”

Schouten notes that the bond bank did not even have a formal policy on entering into bond swap agreements until 2009, after it was too late to avoid the penalties that cost the City dearly from exposing it to so much risk. He notes the bond bank is now using Pat Early's Somerset Partners to do its audit work instead of KSM. Pat Early is that accounting genius that helped lead the CIB into its financial mess. I'm not too comforted learning about that. Not surprisingly, his firm gave glowing reviews to the bond bank staff in its latest audit report.