Tuesday, July 13, 2010

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?


Blog Admin said...

Paul Ogden said on his blog that the presser that was hosted the other day referred to it as a loan multiple times.

I personally think those quoted sections make this whole idea of propping up sports teams unconstitutional, loan or no loan. But I'm not a lawyer. And didn't the concept of municipal corporations being separate from cities give them broad powers that cities don't have the option of, such as running a deficit?

Downtown Indy said...

I've heard the CIB occasionally refered to as a 'quasi-governmental organization.'

Maybe that's how they weasle out of it, by claiming to not be a strictly-governmental agency.

Gary R. Welsh said...

If you read the press release, Indy Student, it never refers to it as a loan. That's an argument the other side would make for it if there was a constitutional challenge. The constitution also contains a strict limit on how much debt a municipality can accumulate. The cities got around that by creating all of these separate municipal governments that operated separately but were still under their control. I think court decisions allowing them to do that failed miserably in interpreting the constitutional limitation. Note, however, that the CIB's appropriations are still made by the City-County government, which makes it the decision-maker.

Gary R. Welsh said...

I would add that the state and local governments give handouts to business all the time with clawback provisions if they don't meet certain conditions. I don't know why the CIB's lawyers didn't couch this subsidy in those same terms rather than treat it as a series of loans, other than the Pacers wanted it treated as a loan that would not count towards its "net cash flow."

Unigov said...

Ironically, the state constitution would have permitted an outright gift of $30 million.

I have not seen a copy of the deal, is the word "loan" or something similar used, or is it expressed in terms that would normally describe a loan - such as, a payback schedule ?

The Indiana AG or State Board of Accounts could take a look at this but they are not much help.

Had Enough Indy? said...

Interesting point.

The amendment also says that the 2nd and 3rd 'loans' will be contingent upon those expenditures being appropriated by the City-County Council. I have to wonder why the Council doesn't have to approve the movement of money around in the current CIB budget so that they can give the first 'loan' to the Pacers organization. That would be the case for any department in City or County government.

Gary R. Welsh said...

It's a point I raised earlier, Pat. Councilor Lutz made absolutely clear during last year's public hearing on the CIB bailout ordinance that it did not provide money to give to the Pacers as part of any lease renegotiation. The first $10 million loan is not included in this year's budget the council approved last year. I'm also curious if Ryan Vaughn will recuse himself from voting on approval of the loans as his managing partner did while he was president of the CIB on matters pertaining to the Pacers since his law firm represents the Simons.

Gary R. Welsh said...

The term "loan" is specifically referenced in the proposed lease amendment, UniGov. The loan is forgiven in its entirety if the Pacers stick the lease out; their repayment obligation is based on a sliding scale depending on if and when they exercise their right to terminate the lease.

Cato said...

You must not be familiar with Indiana courts. Whatever the government wants, the government gets. Even the most explicit language means nothing to our courts.

Anyone who sues over this is wasting his time, since we know how the government wants this to come out.

Paul K. Ogden said...


This is a great find.

Paul K. Ogden said...


I disagree. This issue could be a winner in the state appellate courts...maybe not so much at the trial level...but at the appeals level you would have a shot. I have a heck of a lot more faith in our state courts, especially appellate courts, than I do the federal courts.

Gary R. Welsh said...

If the CIB's counsel is smart, he will simply redo the language to refer to these "loans" as something like "retention payments" subject to clawbacks like you typically find in the economic development statutes.

dcrutch said...

Since you asked- I think this is another obfuscated, purposefully- convoluted piece of goverment excess, cloaked as an essential "standard" for any truly "cosmopolitan" city (on the road to fiscal hell).

And, I LIKE the Pacers.

But, if being "Naptown" means having a big Downtown hole in the ground because that's all we could afford, that sounds pretty good in hindsight.

If the Pacers, the Colts, the Convention Center, the Library, Wishard, Citizens, and a multi-sports stadium on the West side are all affordable- WHILE tax revenues, graduation rates, and school funding are on the skids, unemployment at 10%, borrowing billions as a nation, AND taxes going up next year - will someone please tell me what's now defined as "unaffordable"? Is there such a thing?

As I'm not an economist, it appears I must have gotten way, WAY off the trail somewhere.....

M Theory said...

Guys, I'm of very average intelligence and I fought City Hall and won.

It helps to harness a whole lot of energy if you plan to win.

Marycatherine Barton said...

Yes, a good find, AI. I am happy to contribute to a law suit to try to stop this loan/gift to Herb Simon from Marion County, given to him by his friends, without the permission of the rest of us residents.