Wednesday, March 04, 2009

The Folly We Call The CIB

Our esteemed leaders of the Capital Improvement Board of Managers went before the Municipal Corporations Committee of the City-County Council yesterday and put on their little dog-and-pony show. You can view the entire hearing by clicking here. If you can imagine a first-grade school teacher teaching arithmetic to her students, you could appreciate the level of the conversation. CIB Executive Director Barney Levengood did most of the talking while CIB President Bob Grand and Treasurer Ann Lathrop looked on. Barney explained to his students that we've got a home, and we've got all of these bills, like the electric, water, etc. that we have to pay each month to keep it going and then there's this mortgage we have to pay if we want to continue living in our house. Barney first explained a few pesky problems with the mortgage, which went something like this:

Well, There's this thing called a swap note we took out a few years back for Conseco Fieldhouse for about $16.9 million. Barney didn't go into all of the details, but when the credit markets fell apart last year, the swap note was terminated and there was some $5 million cash penalty that had to be paid. We didn't tell you at the time, but the State bailed us out with an emergency loan and gave us a year to get our house in order. That payment comes due in June and we're not quite sure what we're going to do about that just yet.

Oh, and then there's this $26.3 million variable rate debt we took out in the past as well, which has a maturity date in September. You see, we didn't want to bother with those pesky cash reserve funds you are required to set up with a fixed rate, long-term bond. That credit market meltdown, however, sent interest costs on that debt soaring so we need to do something about that debt.

And, then there's the other matter of that $34 million we got the Circle Centre investors to divert to us from their dividends in the form of a loan for the construction of Conseco Fieldhouse. It was originally due in 2007, but we quietly got the investors to defer that obligation until 2017.

We wanted to be completely transparent and candid with you about all of these funding obligations. That's why we're telling you all of this today.

And by the way, we're doing everything we can to cut our budget. Sure, we increased our budget by $20 million this year, but we're going to show you we mean business and trim our budget increase by $6 million. Of course, we are calling this a budget cut because that's what we need to say to keep the increasingly discontented taxpayers assuaged. We're going to defer purchasing new carpeting, make sure the lights are turned out when a room isn't in use and turn down the thermostat. Barney reminded his students that our mayor didn't want to blame anyone for this mess so let's not discuss how we found ourselves where we are today. I didn't quite understand Barney's analogy, but he said his staff was working as hard as you work when you are running away from the police. I've never been chased by a cop so I don't know what that's like or whether it's at all appropriate in this context. On second thought . . .

Oh, one last point. Barney says there's some issue a CPA firm raised about our status as "a going concern." That's another way of saying that the CIB is insolvent. We have to figure out a way to pay for this mess so our creditors will continue to extend credit to us.

I found it fascinating that throughout this presentation Bob Grand just sat there and deferred to Barney or Ann. Bob Grand is a self-described public finance expert. He makes a living as a bond lawyer. Why would he not be the person to explain the CIB's financial problems, particularly as it related to the bonded indebtedness? Ask which law firms and which attorneys have been providing advice to the Indianapolis Bond Bank the last few years for your answer. Ask why we opted for funding schemes that proved extremely costly and risky to the public. Ask how much those funding schemes cost the public in fees for the professional advice we followed in undertaking those risky funding options as opposed to traditional, more sound forms of public financing. Grand did say near the close of the presentation that he was talking to the Colts and Pat Early was talking to the Pacers about possible concessions from the sports franchises, but he reminded the Committee that the CIB could not unilaterally alter a contract with the team owners. Remember, that right is only reserved to the team owners, both of whom have exercised it in the past to demand more money from the CIB at a huge cost to taxpayers.

The really frightening aspect of this presentation was not the explanation offered by the CIB for this mess, but the complete blank stares of the Committee members and Chairman Mike McQuillen's astonishing compliment for the transparency the CIB had provided to the public. Did you know about the interest rate swaps and variable interest debt before this presentation? Did you know the CIB received a $17 million emergency loan from the State last year after paying a $5 million termination penalty on another debt instrument? Did you know that the CIB had taken out a $34 million short-term loan from Circle Centre's investors to build Conseco Fieldhouse and had defaulted on its repayment in 2007 and had to receive a 10-year extension before the IBJ reported on it a few weeks back?

The questions the council members asked of the CIB leaders were shallow to say the least. Back in my younger days when I analyzed budgets for the Illinois legislature, I used to spend days preparing for the legislators a detailed analysis of a department's proposed budget after reviewing the budget request and spending time interrogating the department's fiscal analyst. Right before the hearing, our staff director would ask me to prepare a list of questions for our members to ask. When I would explain that the questions were already set out in my analysis, he would respond by saying that legislators don't read your analysis. We need the people in the audience to think they really read the budget before the hearing so that's why you need to make a list of intelligent questions for them to ask. In the case of the Municipal Corporations Committee, nobody even bothered to make up a list of questions for them to ask to make it appear they knew what he hell was going on. Truly sad and frightening when you think about it.


Downtown Indy said...

Barney is evidently the designated mouthpiece for these meetings. I went to the last one and it was the same deal.

The Colts lease is interesting in that there are 5-6 ways for the Colts to terminate it, but just ONE for the CIB. That one way? Colt's insolvency.

This lease is the worst deal since the Indians sold us Manhattan Island.

M Theory said...

WOW. Thanks Gary. Without your experience in the these matters and your willingness to share the truth of what is going on with taxpayers, I don't know where we would be.

Citizen Kane said...

I don't have to see the hearing to know how it played out. It is amazing how dumbfounded and uninformed the committee members usually are. It is always clear that all that many of them do is show up. There rarely is any depth of understanding, unless it relates to political posturing. Despite all that, it makes my blood boil to hear that someone thanked them for their transparency. None of what was revealed surprised me, but I was not aware of any of it except the use of Mall investor money - mainly because I paid a lot of attention to the financing of Conseco (The Birdhouse) Fieldhouse.