Saturday, April 11, 2009

IBJ: Kenley Bailout Plan Numbers Don't Add Up

The IBJ's Peter Schnitzler realized the same thing I figured out after studying the fiscal impact statement for Sen. Luke Kenley's plan to bail out the CIB. The numbers don't add up. Schnitzler writes:

CIB, which manages the city’s professional sports stadiums and its convention center, needs to close a $47.4 million annual budget deficit. On April 2, the Indiana Senate’s Appropriations Committee approved Sen. Luke Kenley’s CIB rescue plan 10-2. So far, it’s the only solution on the table.

Unfortunately, it misses the mark by millions, at least in the first few years.

Under the best-case scenario, with the Legislature adopting Kenley’s entire plan, the cash-strapped municipal corporation would be left with an $8.7 million deficit the first year, plus another $4.2 million deficit the second, according to an analysis by the Legislative Services Agency. And that’s assuming the economy doesn’t worsen.

In later years, Kenley’s plan likely would generate more revenue than CIB needs.

“We’re trying to put a plan in place which will last 20 years and more,” said Kenley, a Republican from Noblesville. “When you look at it from that perspective, you have to realize you’re going to have some ups and downs.”

Imagine this. Our City-County Council votes for a plethora of new tax increases in June based on Kenley's plan, only to learn that all of the higher taxes they just approved won't be enough to cover the CIB's shortfall. What this tells us is that nothing short of a major restructuring of the CIB will be necessary to fix this problem. That's why I think it is incumbent on the state to assume control of the Lucas Oil Stadium and its $20 million a year in operating and maintenance expenses.

Schnitzler digs deeper into Kenley's bailout plan's reliance on $6 million a year in revenues from expansion of the professional sports development area to include the new J.W. Marriott convention hotel. It is obvious the $6 million calculation is based on a very rosy scenario. Schnitzler writes:

But the performance of the JW Marriott may be the biggest variable in the equation. Kenley’s plan would expand the downtown Professional Sports Development Area that currently covers Conseco Fieldhouse and Lucas Oil Stadium to include the 1,626-room, $450 million convention hotel complex. The project will be anchored by a 1,005-room, upscale JW Marriott hotel. All sales taxes generated at the complex will go straight to CIB.

Kenley is counting on the development to produce $6 million in sales taxes annually. That means a hotel project still under construction must earn at least $85.7 million in revenue during its debut year, then keep up that performance or better indefinitely.

It assumes 65-percent room occupancy—far above what the Indianapolis hotel market is achieving in the recession. It also assumes the JW Marriott will be able to charge more than $180 for its rooms. That’s $50 more than the average the rest of downtown’s convention hotels are currently getting.

And since the JW Marriott won’t open its doors until February 2011, CIB
will have a long wait for its cash . . .

The JW Marriott’s potential to reach its financial projections depends on its ability to help expand the local tourism trade in step with the expansion of the Indiana Convention Center. That project, scheduled to be complete in 2010, will increase exhibit space from 403,000 square feet to 745,000 square feet.

ICVA must not only retain the 40 annual citywide conventions Indianapolis already hosts, but continually attract new ones. And the JW Marriott must draw a steady traffic in smaller conventions and meetings it can hold inside its own walls . . .

CIB Chairman Bob Grand conceded that the board has a problem if the bailout doesn’t close the financial gap for several years.

“It’s a work in progress,” he said. “If revenues come in later, clearly, we need other revenues now to make sure we remain solvent and in operation. It doesn’t help if we don’t get through the next two years.”

In the meantime, CIB’s problems are beginning to hamstring ICVA’s attempts to land new convention business. Word of its crisis is spreading beyond state lines. “We need to get the funding of CIB behind us. Our competitors are saying, ‘Indy is uncertain. Who knows if Lucas Oil [Stadium] will even be open?’” Wells said. “In a competitive world, that’s what people do to you.

“The one thing Indianapolis has always been able to sell is that we deliver,” he added. “I’m confident that with Sen. Kenley’s help, we can show the rest of the country Indianapolis will be just like it always has been in the past, stable and a great place to stay.”

And now you see the wisdom of the people making these decisions about the future of the CIB. When Mayor Greg Ballard took office, he had two choices for governing this city. He could change the city's direction by reordering its priorities. Or, he could maintain the status quo and spend his entire term in office trying to balance the City's books to pay for all of the excesses of the eight years of Bart Peterson's administration. By choosing the latter, he has sealed his fate as a one-term mayor.


jabberdoodle said...

I know you won't like this comment....

But, the evil Bart Peterson ensured the election of Greg Ballard by pushing through his evil income tax hike. That hike saved Mayor Ballard's bacon in trying to balance the 2009 budget, despite candidate Ballard's confidence that there was $70 million in fluff and his calls for Peterson to cancel the tax hike.

AS for the CIB bailout, I agree with you that the numbers don't cover the full request.

But, I fail to see why the taxpayer should cover, for example, a presumptive increased obligation of $15 million in a not-yet-conducted negotiation with the Pacers. That need not be the direction of the negotiations.

I fail to see why the Governor and Legislature, who were happy to take the pork part of the stadium and convention center expansion project out of Peterson's hands, shouldn't pony up the dough for the operating balance shortfall.

And, I fail to see why Patrick Early, Douglas Brown, Anne Dillon, Jay Potesta, and John Short, have not been summarily fired by whoever appointed them, for their vote to move forward with the building project knowing full well there was not enough income to cover the operating expense. That would be a small measure of accountability.

Although it is so very late in the discussion, Ballard is supposed to unveil a plan next week. Hopefully for Indianapolis and its taxpayers, it will be a great plan that doesn't raise any taxes, holds folks accountable, and does not sacrifice our much troubled City budget to pay for the CIB shortfall.

Gary R. Welsh said...

I'm just fine with that comment, jabberdoodle. As I've said before, the state should assume control of LOS. If it thinks Irsay shouldn't have to contribute to its operating expenses, then let the state pick up the tab. The state owns the stadium, after all.

Gary R. Welsh said...

Also, I've dealt with government contracts for years. Almost without exception, the government insists on a funding clause that allows the government to unilaterally terminate a contract without penalty if appropriated funds aren't availalble to meet the government's obligations under the lease. Clearly, the CIB does not have funding to pay for LOS. The lease for the Colts could be cancelled and renegotiated by the State of Indiana on terms the taxpayers can afford.

jabberdoodle said...

Does the Colts contract have that clause for sure? Would such a clause pinpoint who had the authority to pull that plug?

artfuggins said...

Isn't Luke Kenley positioning himself to run for governor in 2012????

Gary R. Welsh said...

Want to hear something really funny, or not? The lease agreement gives the Colts the right to receive audited financial statements from the CIB. If the CIB files for bankruptcy, the Colts can terminate the lease. If the CIB wants to assign the lease to the owner of the stadium--the State of Indiana--it has to get the Colts' consent, which it can withhold "in its sole discretion." On the other hand, the Colts have a lot of options for assigning its ownership interest without asking for the CIB's consent. The lease is replete with one-sided agreements favoring the Colts. There is absolutely nothing in that damn lease for the benefit of the public, not even a fucking funding clause that always accompanies such government contracts. If somebody levies what the Colts consider to be a "discriminatory tax" on them, the CIB is obligated to reimburse the Colts for the cost of the tax. It just goes on and on and on like that.

Paul K. Ogden said...

Gary, have you seen a signed version of the Colts contract? What I have out of the Star's database isn't signed.

I read the contract the Star had. It is so one-sided as to be shocking to the conscience. I'm not ever sure if CIB had anyone negotiating on the public's behalf. The Colts, writing the contract themselves, couldn't have made it more lopsided.

jabberdoodle said...

Not so funny.

Its a wonder Irsay still gives campaign contributions. I'd say his work is done.

I know said...

Advance Indiana. There is another fine example of contracts written so lopsided that the public and the taxpayer will never see any positive results of a contract meant to protect hard working people.

It is not surprise at all. Even the State of Indiana allows wealthy folks to write their own lucrative one sided contracts. Their campaign contributions and positions on State Committees allow them that right.

The system in Indiana needs an enema!!!

Jon said...

The current situation with the CIB is due to the arrogance of our leaders and the overt influence of the sports owners. If anyone in the government did even a cursory study of arena and stadium finances they would have found that contrary to the opinions expressed by the teams that isn't any evidence that building an arena or stadium benefits the local economy. In fact just the opposite is true, the local economy suffers because monies that could be committed to other uses is consumed by the teams rather than the community. To add salt to our wounds we further exacerbated the finance problems by allowing the teams the vast majority of the revenues that are generated. And most damning of all, our leaders under the guise of 'development' allowed all of this to occur without any taxpayer input until everything was a fait accompli and then in their arrogance crowed about what a great deed had been done.

Hoosier in the Heartland said...

I can see no benefit to the taxpayers of Indiana for the current situation re the Capital Improvements Board (which has turned out to be an oxymoron).

Throw the bums out -- Colts, Pacers and the CIB!

I know said...

Instead of putting another tax on Indiana residents why doesn't someone propose a luxury tax on the HUGE wages the "athletes" are paid.

Most of them certainly do not spend their spoils in Indiana.