|$490 Million Long Beach California Courthouse Built By Long Beach Judicial Partners|
As the plan has been described to the public, the administration is planning to obtain a new criminal justice center through what is known as a build, operate and transfer ("BOT") agreement under the state's Public Private Agreements Act (IC 5-23-1 et seq.). A BOT agreement is defined as "any agreement between a governmental body and an operator to construct, operate and maintain a public facility and to transfer the public facility back to the governmental body at an established future date." Under the Act, the city is required by law to undertake a Request for Proposals by giving public notice. The law was enacted while Steve Goldsmith was still mayor and was in response to questions about whether his administration had entered into privatization agreements in a transparent fashion. The Indianapolis Star and the Hoosier State Press Association weighed in quite heavily during the legislative debate before the law was first enacted in 1997. An Indianapolis Star news story and editorial at the time expressed concerns that the proposed law would allow privatization agreements to be entered into secretively.
The RFP process with public notice was one of the requirements written into the law to ensure transparency and to assuage concerns raised by the media and public interest groups. Also, if public funds are used for the project, the law also requires that construction work performed on the project is subject to public bidding laws for public works projects, and that applicable prevailing wages must be paid to workers who work on the project. Taking the administration at its word that no public funds will be used to construct the new criminal justice center, that means the selected developer will not be subject to public bidding requirements for the project, the prevailing wage rate requirements or minority, women and veteran-owned contractor participation requirements. A draft development agreement would help answer some of those questions, but the administration refuses to release any information to the public.
What little we know is that the administration's plan is to rely upon a private developer to build the all-encompassing facility on a large site upon which the former GM Stamping Plant is located with its own funds after entering into a long-term agreement with the city under which the operator will be responsible for maintaining and operating the building that is to be owned by the city in exchange for guaranteed payments that will ensure a return on investment for the private operator. The administration quietly put out a Request for Information from potential offerors last year that was followed up later by an announcement that it had identified three potential bidders led by foreign companies that would compete for the project.
These three bidders have supposedly submitted responses to a Request for Proposal prepared by the administration that has yet to be made public. Despite a state law requirement, the administration refuses to release to the public the RFP to which the three finalists are submitting proposals. The law permits the administration to maintain the confidentiality of proposals until a winner is chosen, but it cannot refuse to release the RFP document to which the offerors are responding. The administration utilized a meeting last December of the Greater Indianapolis Progress Committee ("GIPC"), a nonprofit group that has offices in the City-County Building and has in the past received funding from the city, to roll out in very general terms its plans for a new criminal justice center. It should be pointed out that management employees of the various media outlets in the city also serve on GIPC's board, which almost acts like a shadow government developing policy initiatives that later become law. This might explain why the local media has been so reluctant to raise too many concerns about the lack of public process being followed with this particular project.
Within the past couple of weeks, we learned from media reports that the administration had secretly entered into seven, no-bid professional services contracts with various firms to perform various services for the city in connection with the project that totaled $12.6 million, about $2 million of which has already been paid out. The 2014 budget contained no specific appropriation for the criminal justice center project. The city controller, Jason Dudich, negotiated a deferment in rent payments due and payable to the Marion Co. Building Authority this year that freed up about $2.1 million in this year's budget to pay for the contracts. The Rules & Finance Committee this week recommended the adoption of a resolution by the council to cancel the contracts, and County Auditor Billie Breaux announced that her office would issue no further payments until her office receives clarification regarding the legality of the contracts. The administration assures the public that all of the professional services fees will be recouped once a final deal is executed, but that's quite misleading since the winning developer will most certainly roll those expenses into the lease and operating fees it charges to the city during the life of the agreement.
The administration has cited a memorandum of understanding it signed with various stakeholders last December, including Council President Maggie Lewis, which it says authorized the administration to incur costs of up to 2% of the estimated project cost for professional services fees. Advance Indiana has learned, however, that persons familiar with the agreement indicate that it contemplated the administration would seek additional appropriation authority before obligating the city to these costs. We also learned that Marion Co. Prosecutor Terry Curry, a key stakeholder, refused to sign that memorandum of understanding. The administration rolled out its 2015 budget this week, which proposed a cut in the prosecutor's budget of about $700,000 at a time its felony caseload has been climbing due to a spike in the number of crimes being committed. The prosecutor's office has two pending death penalty cases and three separate trials for the Richmond Hill blast defendants which will have to be tried in South Bend at great additional expense to the prosecutor's office. Curry believes the budget cut was made by the administration in retaliation for his lack of public support for the criminal justice center project.
Advance Indiana has also learned that the administration heard presentations from the three finalists on Thursday, which like everything else regarding this proposal, was conducted in secret. Many judges are reportedly unhappy about what is being proposed. Their complaints vary from the location of the proposed criminal justice center, the size of courtrooms and court staff offices to the issue of parking. Not surprisingly, the private operator will want everyone who visits the criminal justice center, along with all personnel, to pay for parking in a large parking garage to be built adjacent to the criminal justice center to allow it to maximize the return on its investment. The site at the GM Stamping Plant was not the preferred site selected by CBRE, the firm to which the administration awarded a no-bid contract to evaluate and recommend potential sites. CBRE recommended a site on the county line next to the Indianapolis International Airport. Sheriff John Layton had preferred a location near the airport to maximize the jail's potential ancillary use as a federal detainment center to offset the expense of operating the jail without regard to the inconvenience of the site to court personnel and visitors. Interestingly, CBRE has been allowed to participate in the bid being submitted by one of the three finalists, the Plenary Group, despite its inside knowledge gained from working with the administration on the site selection.
Fellow blogger Pat Andrews argues quite convincingly that the proposed criminal justice center project should also be subject to public referendum, in addition to the council approval the administration concedes is required before any agreement becomes final. The 2008 property tax reform law subjects certain controlled projects in excess of $12 million to be subject to approval by voters at a referendum. The $700 million Eskenazi Hospital project undertaken by the Health & Hospital Corporation was subject to a county-wide referendum even though the HHC had no plans to levy any new property taxes to pay debt service on the bonds issued to build the hospital. The mere fact that the bonds were backed by HHC's full faith and credit, and that it would be required to levy a property tax in the future if current revenues proved insufficient to pay the debt was enough to subject it to a referendum.
The only way the private developer can obtain a low interest rate on the funds it borrows to build the criminal justice center to keep costs down is if the city is obligated to make minimum payments during the long-term life of the lease agreement and can't simply walk away from the building for convenience. The administration will argue that it's not a controlled project because it doesn't require the city to borrow any money, and the agreement to be entered into with the private developer is not a lease since the city will technically own the building. Nonetheless, taxpayers will be on the hook to repay a multi-billion dollar long-term obligation that will most assuredly require higher taxes if revenues prove insufficient to cover the mammoth-sized, long-term obligations the city is on the hook to repay.
The total cost of this proposed project is anyone's guess at this point. When discussions first began, estimates were as low as $250 million. Those costs quickly grew to more than $400 million. If the amount of the professional service contracts entered into by the administration represent 2% of the project's costs, then total costs would be $625 million. Informed sources say they wouldn't be surprised if the total costs approach $700 million. This project seems to be modeled after a controversial P3 agreement the California courts system entered into for construction of a 31-courtroom courthouse in Long Beach, California built and operated by a private consortium led by Meridiam, one of the three finalists bidding on the criminal justice center project. The administration is relying on some of the same players involved in that project to advise the city on this project, including KPMG and a Los Angeles law firm, Nossaman.
The Long Beach courthouse, now called the George Deukmejian Courthouse, was supposed to cost about $325 million, but the developer wound up financing about $490 million in total for the project. The annual fee paid by California taxpayers to the private developer started at $50 million but will increase in future years based on the Consumer Price Index. Not all of the space in the building is used by the courts; some is leased out to private businesses. A recent legal dispute has arisen over whether property taxes must be paid on the building. The LA assessor's office has taken the developer to court over whether it will be required to pay about $5 million a year in taxes on the building. The proponents of the courthouse project obtained passage of special legislation exempting the building from property taxes, but the LA assessor's office maintains that the law is unconstitutional. If the assessor's office prevails, taxpayers will be on the hook to pay the extra property tax expense, not the private developer.