Tuesday, July 13, 2010

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.


Jon said...

Someone else mentioned this; is it 10 million per year to the Pacers and they pay the maintenance or is it ten million per year and the CIB pays the maintenance?

Gary R. Welsh said...

Good question, Jon. That really hasn't been spelled out. We'll have to see the language of the lease amendment when the CIB meets later this week to vote on it.

Paul K. Ogden said...


The documents are all on the CIB website, including the amendment.


Jon said...

Isn't it wonderful how the CIB, the Star and others just ignored the parking agreement clause. May I have a parking garage for one dollar a year? By the way, why doesn't the CIB go after the Simons for parking rent the last ten years?

The wonderful CIB, the gift that just keeps on giving.

Gary R. Welsh said...

Jon, It is treated as a loan to the Pacers and does not count towards their defined "Net Cash Flow." Presumably, the Pacers will continue to pay the operating expenses out of these "loan proceeds" that will be forgiven if the Pacers don't sell the team and relocate it. God forbid they allow the public to find out that they really weren't as high as they claimed.

Jon said...

AI, see the bridge agreement with respect to the parking fee, the Pacers never paid for parking and what financial offsets? I briefly scanned the parking agreement but did not see any language about offsets.

Gary R. Welsh said...

Yes, Jon, Ted Bulthaup pointed out that fact in one of his paid ads in the Star and IBJ. The IBJ also had a separate story on it. I believe the Simons have been able to pocket millions because the CIB let them off the hook for that payment. The CIB has also paid for several million dollars in improvements to Conseco since the start of the lease that the Simons were actually obligated to pay.

Gary R. Welsh said...

Well Jacquie Nytes is going to have to fight off a Little Hatch Act challenge if she thinks she's going to run for re-election to the council. I'll be damned if she gets to administer an agency that is spending millions of federal tax dollars and participating in partisan elections at the same time.

Blog Admin said...

What would that be? Her positing in IDEC?

Gary R. Welsh said...

She runs the Mapleton-Fall Creek CDC which gets grants from HUD for redevelopment work.

interestedparty said...

There was a very interesting segment on NPR this afternoon about concert promoters and facilities. Apparently it's really hard to make a profit on ticket sales, so some savvy promoters have been building the venues/stadiums/auditoriums themselves, so when they own the facility they make money on concessions, etc., which are more profitable than ticket sales.

Looks like some have figured out how to do it without even owning the facility.

Boggles my mind: popcorn, beer and soda are more profitable than the concert tickets, and you know how much is charged for those. Is this in any way comparable to sports event tickets?