By Peter Schnitzler, The IBJ
pschnitzler@ibj.com
The Indianapolis Capital Improvement Board revealed just days ago that it will cost nearly $50 million annually to get the organization's books back into the black.
Now, the question is whether professional sports teams or taxpayers will foot the bill-a debate that's already raging behind the scenes.
In private discussions, Republican Mayor Greg Ballard's administration has proposed hikes to CIB's existing mix of hospitality taxes, or, alternately, permanently shifting sales or income tax revenue away from other government agencies.
But state Sen. Luke Kenley, a key fiscal leader in the Legislature and also a Republican, wants the teams, their fans and visiting conventioneers to pony up instead.
"We've kind of asked the taxpayer to give their contribution," Kenley said, referring to the stew of taxes used to fund construction of Conseco Fieldhouse and Lucas Oil Stadium.
CIB Chairman Bob Grand's opening negotiation position: Beg for help.
"Keep in mind that the Capital Improvement Board cannot do any- thing on its own to raise revenue. We can't raise any taxes. We can't create any taxes. We can't create any sources of revenue," said Grand, a partner with the local law firm Barnes & Thornburg LLP.
"At the end of the day, it's outside of our control. We're going to lobby to go do something. Somebody needs to help us figure out a longterm solution."
CIB, a municipal corporation that oversees Indianapolis' downtown professional sports stadiums and convention center, disclosed Jan. 27 that it is in such dire financial straits that its outside auditor is evaluating whether it can remain a "going concern."
IBJ reported last fall that CIB was wrestling with a steep operating deficit for the Indianapolis Colts' new home, Lucas Oil Stadium, which now is estimated at $20 million annually. At the Jan. 27 meeting, the board revealed that it also expects to have to pick up $15 million in annual operating expenses for Conseco Fieldhouse, home to the Indiana Pacers.
In addition, the board reported that, because of the meltdown in credit markets, it might have to settle tens of millions of dollars in bond debts by September.
The timing for CIB's woes could hardly be worse. With the state and nation immersed in the deepest recession in a generation, no ready source of cash is available.
To find solutions, Ballard's financial team and CIB have launched initial discussions with Republican Gov. Mitch Daniels' administration, representatives of the Colts and Pacers, and key members of the General Assembly.
CIB-which has nine members, six appointed by Ballard-says any solution will require approval of the General Assembly and, likely, the City-County Council.
Community watchdogs call CIB's pleas for help disingenuous at best.
They say it has long operated with little transparency or scrutiny, and kept details of its sports deals close to the vest. They consider it unfair for the board now to ask the public to pay more or suffer cuts to public services.
"The citizens of this city, we don't have any money left. It's time to drive some hard bargains with the millionaire team owners. And, frankly, the people who go to the games should bear some of this," said Julia Vaughn, policy director of Common Cause/Indiana.
"It's a small group of people who really benefit from these venues. Don't come asking the citizens for any more."
Funding scenarios
A sticky point in negotiations is sure to be who should shoulder operating costs for Lucas Oil Stadium, the $720 million retractable-roof stadium that opened last fall, and Conseco Fieldhouse, the $183 million arena that opened a decade ago.
Both the Pacers and Colts sought the new venues to capture additional revenue from suites and other sources-money the teams said was essential to making the franchises viable in a relatively small market.
The Colts deal leaves CIB on the hook for Lucas Oil Stadium's operating costs-and team officials have shown no interest in renegotiating. The Pacers, meanwhile, recently turned to CIB to pick up Fieldhouse operating costs, and suggest they need to renegotiate their overall pact in hopes of halting steep losses.
CIB also expects to have to absorb a $5.8 million operating deficit for the Indiana Convention Center, and says it needs to provide $3 million annually to the Indianapolis Convention and Visitors Association to market the convention center's expansion.
On top of that, CIB must quickly settle a pair of bond debts totaling $43 million that come due in June and September. Bond experts estimate that, at current interest rates, CIB needs $4 million each year for 20 years to refinance them.
City Controller David Reynolds, part of the Ballard administration, said CIB is discussing three possible methods to generate more than $47 million annually. He said CIB has expressed no preferences; for now, it's simply putting ideas on the table.
The ideas:
Expand Indianapolis' Professional Sports Development Area, which already captures $16 million in annual income taxes generated inside the stadiums. CIB currently uses $5 million of that for operating expenses. The $11 million remainder helped finance construction of Lucas Oil Stadium.
The zone could be broadened to capture income taxes already collected elsewhere, such as inside downtown bars and restaurants. But city and state agencies would suffer corresponding cuts to their budgets.
Cathy Burton, president of the Marion County Alliance of Neighborhood Associations, said she doesn't like the idea of taking resources from streets or schools to shore up CIB's books.
"I certainly understand the importance of the professional sports teams to Indianapolis' economy. But given the current financial state of the city, state and country, just as everybody else is being asked to tighten their belts, do with less and cut back, perhaps we should be asking the same from our sports teams," Burton said. "I don't think robbing Peter to pay Paul is a good idea."
Establish a Sales Tax Increment Financing, or STIF, district. CIB would receive sales taxes generated inside the Hiking the existing mix of hospitality taxes that already fund CIB. Reynolds said 1-percent increases in the food-andbeverage tax, innkeeper's tax and admissions tax would generate $28.5 million annually.
But John Livengood, president of the Restaurant and Hospitality Association of Indiana, said he thinks such hikes would seriously harm the city's tourism industry.
Kenley agreed.
"Some of those [taxes] we thought we were pushing the envelope when we gave them the authority to do it the fi rst time around [for Lucas Oil Stadium's construction]," he said. "I'm not ruling anything out, but it's pretty problematic at this point."
While the Legislature is willing to work with CIB, Kenley said, he wants taxes or fees assessed on the fans and businesses who visit and do business at the city's stadiums and convention center.
Kenley said he advocates a new tax on tickets, and perhaps a gross-receipts tax for stadium vendors and service providers as well.
And Kenley wants to see the Colts and Pacers take on more responsibility for the expense of stadium operations.
"If they had at least some skin in the game, maybe that would help control cost overall," he said.
Price of inaction
If negotiators can't come to an agreement, CIB will have no choice but to slash expenses. Many of the costs of stadium and convention center operations, such as liability insurance and utilities, would go on as long as the buildings stand-whether or not there are sports teams or conventioneers inside.
CIB already has trimmed 8 percent off its $78 million annual budget, Grand said, and will have follow-through on additional reductions if new revenue sources fail to materialize.
There are no good choices. If CIB cuts its marketing budget, for example, it faces a Catch-22: Its venues would draw fewer patrons, and revenue would fall. Other changes would have similarly negative consequences. Laying off security guards, as another example, would increase the chance of a crowd-control incident.
"We'll continue to cut until we have just a building there with no lights on. The expenses, we're taking them in a priority way to try to do the most reasonable things," Grand said. "We could get to a point where we have nobody there. Is that smart? No, it isn't. Because it's a massive facility. But if those are the kind of cuts we need to make, we need to make them."
If CIB and other stakeholders hope to negotiate a solution that central Indiana residents will support, they'll need to have their talks in public, not behind closed doors, Common Cause's Vaughn said.
She said that in this recession, taxpayers have less patience than ever for the pricey problems of professional sports teams.
"There's a growing concern about decisions where it's always up to the little guy to pay the piper, but we don't get included in the discussion," she said.
"Apparently, our leaders believe these teams and buildings were so important that they put us on the hook for a long time," she added. "At least have the decency to engage us in a discussion before reaching into our pockets."