Sunday, February 17, 2008

A Look At City Finances: We're Screwed

Years of overtaxing, overspending and oveborrowing are coming home to roost in Indianapolis. If we were a business, we would be hiring a good bankruptcy attorney. But this is government so they'll look for more ways to screw the taxpayer to get by. The Star's Brendan O'Shaughnessy takes a look at the problem and has this to say:

Whether they send their children to its schools, use its libraries and stadiums or ride on its buses, the people who live and pay taxes in Marion County are about to enter an era of cuts in government service.

Schools are already trying to identify where costs can be cut to ensure money is available to give teachers raises.

The library system has pared spending to avoid closing on Sundays.

The agency that will run the new Colts stadium is worrying about how to find millions of dollars in new annual operating expenses.

Tight budgets already have created a problem for the agency that salts roads when it snows.

And the city's bus operation could be forced to cut routes and reduce frequency if its revenues slide.

Money flowing in simply isn't keeping up with the rising cost of delivering services. Expenses are being driven up in part by the ever-climbing costs of labor, fuel and health insurance.

Projections show the city and county will run through reserves of about $50 million over the next three years, then plunge into red ink in early 2011.

"Clearly, this doesn't work," city Controller David Reynolds said this past week, pointing to a chart in his office showing the city's cash reserves on a steep downward curve that ends in a $101 million deficit in 2012.

"We've got a problem. . . . Three years out, we'll have zero cash."

Caps on property taxes called for in Gov. Mitch Daniels' property tax relief plan will only aggravate the problem, resulting in the loss of about $41 million in property taxes out of the combined city and county budget by 2010 and $108 million for all of Marion County's various taxing entities that year.

Reynolds said it's too early to lay out solutions. But he noted that, aside from public safety spending, his instructions from the mayor were to "leave no stone unturned" in looking for potential savings.

The Ballard administration, however, is adamant about avoiding tax hikes. Marion County's income taxes went up just last year, climbing 65 percent to 1.65 percent from 1 percent. But with state lawmakers likely to adopt the property tax caps, local politicians may have no choice but to raise fees and local income taxes to find the money to keep government running.

As I pointed out in my post about Mayor Ballard's testimony before the House Ways & Means Committee, the groundwork is already being laid to tell people that we're permantly stuck with Mayor Peterson's $90 million, 65% increase in the local option income tax. Even with the more than dozen tax increases during Peterson's tenure, there isn't even close to enough revenues to cover projected spending. O'Shaughnessy explains:

Were it not for its reserves, Indianapolis government already would be operating in the red.

A five-year forecast by Bart Peterson's administration -- prepared in December, the month before Ballard took office -- shows that the city and county budget will take in $897 million in tax revenues this year and spend $909 million.

The gap between revenue and spending is projected to more than double, to $30 million, in 2010 and climb to $45 million in 2011, when reserves will run dry.

Of all of our current spending problems, the one that is the worst case of self-inflicted harm is the Lucas Oil Stadium. As you've heard me complain on numerous occasions, our city leaders had the infinite wisdom to strike a deal with Irsay that provided no means of paying for the operating and maintenance costs of the new stadium once it is built. On that, O'Shaughnessy writes:

When lawmakers raised taxes to build the new stadium, the financing package they passed did not include money for the extra security, cleaning crews, electricity and other expenses that come with maintaining a stadium that is nearly double the size of the RCA Dome.

CIB officials have said the new stadium could cost roughly $10 million more per year to run than the Colts' current home.

They plan to draw down reserves, which will last until 2010, and hope to tap any leftover Convention Center construction funds from higher-than-expected food and beverage tax collections to make up the difference.

CIB President Robert Grand said the board will have to wait and hope the Convention Center expansion does not run into problems and eat up the expected reserves.

Notice how O'Shaughnessy's report conveniently blames state lawmakers for the problem by suggesting it was of their making because they didn't include those costs in the financing of the new stadium. State lawmakers knew exactly what they were doing. They were adamant that revenues from new taxes be used exclusively to retire the bonded indedbtedness incurred for the stadium's construction. In the past, the CIB was allowed to use tax revenues intended for retiring the bonds on the RCA Dome for operating and maintenance costs. As a consequence, after 23 years we still owed $75 million on a building that cost about that much to build, a building we're preparing to demolish in a few months to make way for an expanded convention center. By way of comparison, it was as if you or I had borrowed money to purchase a Chevy Impala on which we could only afford to pay the interest, and then after a few years, we took the Chevy Impala to the junk yard and borrowed ten times as much money to buy a new Rolls Ryce on which we can't even afford to buy the gas to keep its tank full or perform basic maintenance on it.

Now, the correct solution to the Lucas Oil Stadium problem should be to force the CIB to go to Mr. Irsay and explain to him that our city simply can't afford to carry any more of his costs, and that he'll need to pick up the maintenance and operating costs for the stadium just like other football team owners around the country do. If the past is any indication, however, you can bet that Mr. Irsay won't be asked to do with fewer Kerouac manuscripts or Oxycontin prescriptions. Instead, Bob Grand and company will get lawmakers to tweak the state law and allow the CIB to use the taxes you are paying for the construction costs on the stadium to pick up these annual expenses. And in about 25 years, we'll still owe about $700 million on the stadium.

The bottom line is that the city is screwed. We are bankrupt and there are no easy solutions for getting out of this mess. The very people who created this mess were very quick to wrap their tentacles around Mayor Ballard shortly after his election. Hopefully, his luck will be better than Pope John Paul I's was when he attempted to tackle Vatican Bank corruption too soon into his short-lived papacy. The stress of the job is sure to be overwhelming as he is forced to make one unpopular decision after another in the coming next four years. Let's just hope he opts for long-term fixes and not the bandaid approaches of his recent predecessors, even if it makes him a one term mayor.


Anonymous said...

If we can get the legislature to take the first step of removing unnecessary layers of government (starting with townships), we would save millions of dollars. That is my suggestion for the first step.

Anonymous said...

but Mayor Ballard said that all was needed was some spending cuts.....he had the what is the problem?

Wilson46201 said...

When Ballard finally finds the "fluff" in the budget and cuts all the "fluff", all will be well, won't it?

Anonymous said...

as an English major I must request correction on Kerouac spelling. But good post. Sad but true.

Gary R. Welsh said...

Thanks for the correction. I went with the spelling of an attorney I know with the same name.

Anonymous said...

What an amazing article! After 8 years of Bart-o-nomics, the Red Star Rag finally discovered that the city is going broke!

After Bart and his Council minions slammed through the 2008 budget with blank pages instead of numbers, we now find out that a report he had prepared in December shows his budget included $12MILLION in deficit spending.

His administration also used up the money for road salt for this year, leaving the new administration without the means to keep the streets clear.

Peterson and his CIB president Fred Glass also built Jim Irsay a palace and forgot to mention to anyone that it would cost $10MILLION more a year to operate. Then this rag makes it look like it was the fault of the state for "not including money in the financing" for it.

The people in this county were taken for eight years without a word from this rag. Now they will spend the next four years trying to make Mayor Ballard look bad. Is there any wonder people get their news from other sources?

Anonymous said...

I can't TAKE any more township talk. Yes, townships cost a bit in overhead, but we've had them since the state was created, and township spending hasn't skyrocketed in the past 20 years.

Township government overhead (constable, etc) doesn't cost nearly as much as the Colts two stadiums. For the new stadium we're looking at $60 million a year in debt payments and operating expenses. That's about $100 a year for 30 years from every working adult in central Indiana - quite a tax for a frivolity.

Anonymous said...

Maybe we could get Bob Irsay to dress up like Willy Wonka again, and Bart Peterson an oompa loompa. Give them signs that say: "We took all your money and made ourselves filthy rich so please help a little more so can pay the light bill!" Then make them stand on the median at 82nd/Shadeland with the other schmucks that stand there daily begging for cash!

Anonymous said...

Thanks Bart!

Anonymous said...

Uh, anon 8:59, township spending has gone through the roof. So you're wrong about that. It is wildly inefficient to have all those separately elected township officials with their fire depts etc.

Mayor Peterson asked for the operating expenses for the stadium but was shut down by the partisans at the statehouse. He did not hide the cost from anyone. You may disagree with who should pay for it, or whether we should even have built the stadium, but Peterson was above board about the costs.

Again, if we had had a downtown casino like Peterson proposed, out-of-town convention visitors would be paying for the stadium, not us. And we'd have a lot more money for public safety.

Anonymous said...

If anyone has been paying attention the last 20 years, you know it's not all Peterson's fault - that the genesis of our budget problems is the police and fire pensions from the 70's that went unfunded for so many years. The money the City should have been contributing to the pension fund was squandered on other things by the republican Mayor Goldsmith and the republican controlled Council.

Peterson was forced to make payments that rose each year as the officers for whom that pension was created, began to retire.

That is the biggest albatross we have had and continue to have.

The income tax increase last year was supposed to be in combination with the City creating a $450 million pension fund, out of which the retirees could be paid. $30 million of the $90 million raised each year by the income taxes was to pay off the $450 million bonds.

That fund has not been created. Instead Ballard seems on a pay-as-you-go path once more, so our liability will rise until the retirees begin dying off. He seems poised to undo the fix that Peterson brought to bear on the problem. Not a good move.

I am inclined to be sarcastic about the $70 million in cuts that Ballard promised - but the reality is that he can't do it, there isn't any fluff. Now he needs to learn quickly as we are still digging out of bad decisions made years ago.

Hope he has some intelligent people around him, or all the building of malls and visitor attractions downtown can't save this City.

Anonymous said...

The Peterson Administration did so much to harm this city and to leave a great big mess for Greg Ballard to clean up, but............Greg Ballard hired most of the Peterson Administration and betrayed those who worked to get him elected! He is so screwed!

Anonymous said...

Give Olgen Williams a basketball and a T-Shirt, he will fix the money problems!

Anonymous said...

How many Bart Buddies is Greg Ballard still paying? Fred Glass should have been fired for incompetence!

Anonymous said...

When is the city going to wake up and realize that subsidizing the cost of police officers to take their friends out to bars and take their families on shopping sprees probably isn't affordable any more.

I don't know of any other laborer jobs that provide the employees with cars and free gas.

indyernie said...

"I don't know of any other laborer jobs that provide the employees with cars and free gas."

I like the fact that my neighbor has his patrol car parked in his driveway when he's home.

I believe that the patrol car slows down those driving past and detours those looking for a home that is easy to break in to.

Leave the cops alone the take home cars is a perk that help us all.

Anonymous said...

wilson, that was stupid. its not ballard's fault. lets blame in on peterson and hudnut. give ballard a chance.

Anonymous said...

the previous city county councils robbed the funds of of that particular pension fund for their own little projects and never repaid them

Anonymous said...

Peterson's TAX AND SPEND philosophy combined with corruption may well be the end of Indianapolis as we know it.

*Peterson went 2 years without hiring a police officer.

*Peterson failed to replace needed equipment such as salt trucks, police cars.

*Peterson did create new higher salaries for his cronys.

*Peterson left this city with a revolving door on the jail & fear of violent crime in the residents.

Can we recover from the damage he's done? -Or should we just change the name to South Detroit, Indiana.

Anonymous said...

Indianapolis appears to be edging towards bankruptcy. Perhaps bankruptcy is too harsh a word so I'll use the term "default" instead. People and businesses go bankrupt, cities just default. The end of course, is the same, and the reasons for going belly up are generally the same as well.

"When your outgo exceeds your income then your upkeep will be your downfall".
And so it goes with Indianapolis. Too much cash going out, not enough cash coming in, leaving the upkeep of basic services impossible in the future.

We really shouldn't be surprised. World Class Cities aren't cheap. That is what we are isn't it, a World Class City?

To think that $7 billion in tax dollars dropped into that big black hole downtown known as the Mile Square to lure conventioneers would save us from financial ruin was akin to building our city's financial future in a bed of sand. Recession, a declining dollar, tight credit and a multitude of other factors will take a huge chunk out of this convention business and not just here.

Bankruptcy or default, pick the term you like best but rest assured that it will happen and it might just happen sooner than anyone thought possible.

Indianapolis is on the brink of financial collapse. It's not a joke any more regardless of what your politics are.

Anonymous said...

Two words: Thanks Bart

Anonymous said...

10:21 -- I'm with you on the cops' takehome cars. The price of wear and tear PLUS all that free gas is too big a perk not to be examined closely for savings.

Let's face it - the police get every tax dollar they want for whatever they want without any real critique of the necessity in these hard times.

As far as I'm concerned, if the take-home cars are really meant to deter crimes, then make the cops live in the crime-ridden neighborhoods to get one.

Anonymous said...

We are paying 8% of $909 million on Debt Service? Those "reserves" are likely to be spent on operating costs, as they have been in the past? That is, bonding for operating costs is financial crack cocaine. If the Mayor gets value for value paid there will be tons of fat in his budget that can be eliminated along with the featherbedders who don't give us value for value.

Gary R. Welsh said...

A state pick-up of the pension debt is the only hope for getting us out of this whole we're in. I know Ballard got hammered hard on that by Carolene Mays, but if we have to pay for that out of our operating budget, then we're going to be in desparate shape. Even the Peterson plan forced us to pay $30 million every year to help pay down the pension liability. That's just too much.

Anonymous said...

Don't leave Goldsmith out of the blame for the current financial mess. He had a big part in it also.

Anonymous said...

One answer: toll gates on I-69, Allisonville, Keystone, and Michigan Rd.

The practical way of accomplishing this is a commuter tax. We have to salt streets and provide police and fire protection as well as water and sewers and streets for daily out-of-town visitors from Hamilton County and the other suburban counties.

I'm tired of paying my hard-earned dollars to provide services in Marion County to all the free-riding suburbanites who would like to tell us how to run our city for their benefit.

Anonymous said...

I like the fact that my neighbor has his patrol car parked in his driveway when he's home.

I believe that the patrol car slows down those driving past and detours those looking for a home that is easy to break in to.

Leave the cops alone the take home cars is a perk that help us all.

I'm sure the minority of neighborhoods that have police cars parked out front of a home like it too. Those same neighborhoods tend to be the ones that need additional police presence the least.

Anonymous said...

indyernie...Sorry that police car parked in your neighbors driveway is int of those city services you will have to give up. Better then have your trash picked up only once a month.


Anonymous said...

Google the take-home police car subject, and you'll get a good picture of the cost. And, the added wear and tear on the vehicles, plus the increased exposure to insurance claims, for a city that self-insures up to, I believe one million...well, it's a lot of money.

It's astronomical. And the few studies performed thus far, indicate it's a mixed bag, at best.

The police do themselves no favors by the off-duty driving habits of some of their brethern. I just drove up to north Indy from the south side of Indy, late Sunday aft., and was passed by three different IMPD cars with families aboard. And I was going 75 on I-65

There is plenty of fat in the city budget. The problem is, my "fat" is your necessity. For a long time, councils and mayors have given into citizens' demands of government. As a result, we have layers upon layers of expensive government.

If Ballard really wants to remain the populist he was in November, he'd tally up the large-ticket items, and ask City County Councillors to conduct polls in their districts. It would determine what services residents want, and will pay extra to keep.

He won't, though. It's not in the Barnes & Thoornburg playbook. Or Ice Miller's or B&D's either, for that matter.

Those leeching law firms survive and make money on status quo. Ballard was not elected as a status quo mayor.

Therein lies the eternal rub. It won't change unless he acts boldly. So far, he's not. It's early, tho. He still could.

As an aside, an 8% debt-to-budget ratio isn't bad. There are municipalities that would kill to have a ratio that low. Lower is better, of course. But is could be much worse, and it is in many cities.

Wilson46201 said...

I assume you are going to Email to Moody's and Standard&Poor's this Star article that is causing you such political anguish? They just gave Peterson's Indianapolis an AA bond rating for good financial management.

It takes a general-topics newspaper reporter to find fiduciary shenanigans that trained CPAs and lawyers at the bond rating agencies can't discern, it seems...

Anonymous said...

ai - the income tax was specifically designed to provide the $30 million per year for the pension so that it could be pulled off our operating budget.

Don't forget that Ballard said Peterson should repeal that income tax.

Now he's asking for even more money when that part of the income tax cannot be spent on anything else besides public safety. It was technically a 'public safety tax' that used income tax as the revenue source.

2:26 -- Peterson asked for the income tax hike to include folks who work here but live elsewhere. The Legislature declined, so until they change their minds we're stuck.

Indianapolis deserves the truth from Ballard - that there isn't any fat; certainly not $70 million. If he goes begging when he thinks tax revenues will be $40 million short, then there's no way he can cut $70.

Ain't no fat.

Anonymous said...

Geez all Mr. Bart did was raise taxes to keep that bond rating. By the way the city is hock 750 million for the water company. When politicians get involved the tax payers get fleeced!

Anonymous said...

The water company debt is more than secured by ratepayers' bills for the remainder of the debt's tenure.

And, by almost all rating agencies' analysis--it is secured quite well. You may not agree with the acquisition of the water utility. I have some doubts about it myself.

But you cannot ignore that its financing is quite secure and not the least bit in danger.

Unless we all stop paying our water bills forever.

Jeff Cox said...


The bond agencies lowered Indianapolis' bond rating from AAA to AA during the Peterson administration.

Anonymous said...

Want to save millions? It's easy. The Sheriff of our county serves civil process, guards the jail and city county building, and collects tax.

Take all luxury cars away from his executive staff. They have no justification for a car. They should drive to work everyday like the rest of us. They do not patrol.

Since civil deputies do not respond to crimes, they do not need expensive flashing lights nor sirens.

Now for my favorite: The sheriff's department is filled with patronage cronys. Do a job assessment on each position and only permit him budgeting for JUSTIFIED positions. No more make-work, do-nothing jobs for friends with no qualifications. I bet you can drop 40 off his payroll immediately just because they have no legitimate job responsibilities.

Anonymous said...

Procynic: in 2006, Moody's re-defined their bond reporting caetegories. Almost all munucipalities took a hit, because, in Moody's view, municipalities have less taxing power than states or the federal government.

Thus, in their view, cities have to work harder to raise revenue to overcome increasing expenditures.

It's a broad stroke of the brush. And in many cities, it's 100% true. Here's it's only partially true.

The rating agencies make no judgment about the political wisdom of tax inreases or budget expenditures. They only insist on balancing of the books.

Twice during Peterson's administration, for brief periods, Moody's or other rating agencies slightly downgraded Indy's bond rating.

It is not unusual. It requires close attention to detail, to be sure. But it's far from rare. And once the controversial pension tax was passed last year, the ratings immediately rebounded.

At no point did they ever fall below the "highly recommended" status.

Anonymous said...

Took the Star long enough. I've known we were bankrupt since a year ago.

I even called Jackie Nytes once and told her we likely were and that we should start doing a serious audit on every last widget this city buys.

She basically told me I was nuts. Funny, I'm the furthest thing from an accountant there is and I could tell we were bankrupt.

Jackie works directly with our books and denied it.

Anonymous said...

Anon 2:26 said:

One answer: toll gates on I-69, Allisonville, Keystone, and Michigan Rd.

The practical way of accomplishing this is a commuter tax. We have to salt streets and provide police and fire protection as well as water and sewers and streets for daily out-of-town visitors from Hamilton County and the other suburban counties.

I'm tired of paying my hard-earned dollars to provide services in Marion County to all the free-riding suburbanites who would like to tell us how to run our city for their benefit.

Notice how no one else even deigned to respond? It's because so many workers employed at Indianapolis (read in the city of Marion county) businesses live outside of Marion County.

They don't live in Marion County but enjoy the same services such as fire and police protection, salted and snow-plowed streets, paved and pot-hole filled thoroughfares for a navigable commute, trash collection from the places of employ, etc. but they're paying NO taxes to support said services.

I agree, we need a commuter tax, oh yes indeedy. But the likelihood of it happening is slim to none.

Anonymous said...

The bipartisan government-reform panel led by Indiana Supreme Court Chief Justice Randall Shepard and former Gov. Joe Kernan recommend the elimination of 1,155 units of government and 5,833 fewer elected officials statewide saving $400 million each year.

We've got to quit governing like this!

Message from former Governor Joe Kernan:

Study shows that Kernan-Shepard recommendations would result in between $200 and $400 million in savings each year

Anonymous said...

Townships must be eliminated!