|INDIANAPOLIS VENUE BOARD SEEING RED INK|
January 29, 2009
Copyright 2009 MediaVentures
Indianapolis, Ind. - The Indianapolis Capital Improvement Board, which manages Lucas Oil Stadium and other sports venues, says its operating deficit could grow to $43 million by next year, far worse than projected and too large for it to solve alone.
Part of the problem: the expected renegotiation of the Indiana Pacers' lease of Conseco Fieldhouse. The basketball team pays $15 million a year to cover game-day expenses, and the CIB, calculating the worst-case scenario, is assuming it could have to take over that cost.
To get out of its financial mess, the CIB could try to renegotiate better deals with the Indianapolis Colts and other sports teams that use the stadiums it runs.
It also could ask city taxpayers for help, though no new taxes could be raised without the OK of the city or state.
Neither option was discussed; instead, board members said the goal was to review the problem and kick off efforts to find solutions.
The situation is so dire that board Treasurer Ann Lathrop said auditors are reviewing the CIB's finances as a "going concern," a term used to suggest that its near-term viability is in question.
The board already had projected an operating deficit of up to $20 million per year in running Lucas Oil Stadium, and it added $5 million to that total for other facilities this year. Just as pressing, the CIB now expects to have to pay $43 million this year for unanticipated loan and insurance obligations brought on by the ongoing world financial crisis.
Debts that could have been handled in the past are being called in by banks short on cash, Lathrop said. Another one-time debt payment of nearly $34 million more will come due in 2017. Bob Cockrum, the City-County Council president and a CIB member, said nearly every option for a solution is on the table.
Raising taxes during a recession, he said, likely would provoke a strong negative reaction. "Some people would support it for one team or another, but others would say enough is enough," Cockrum said. "I don't think a bailout is an option."
He said the first step for the board was to reduce expenses.
It ordered a cut of 8 percent, or about $6 million, from this year's budget of $78 million and instituted immediate freezes on hiring, salaries and travel.
Just how effective any of the more obvious solutions might be will be a big question for the board to tackle.
Colts owner Jim Irsay could not be reached for comment, but Pete Ward, the team's vice president, last year said the idea of "reopening a (lease) agreement that took four years to negotiate is ludicrous."
Patrick Early, the board's vice president, said the struggling Pacers are expected to use their option to renegotiate their lease this year.
He said he expected the CIB will have to take on more of the expenses of running Conseco if it wants to keep the team in Indianapolis.
"All we've established is that the business model we're working with now can't work in the long term," Early said. "We haven't figured out a solution, but I believe it's in the best interest of the city to have the Pacers stay in that building."
Early said the Pacers' owners, Mel and Herb Simon, can't continue to lose money on the team, even as he acknowledged that the players' legal troubles in the recent past contributed to falling attendance and income. He said the team makes less than the NBA average because it's in a smaller TV market.
"Ultimately, we own the building," Early said, "so we'll have to deal with those expenses." While the Pacers pay $15 million a year to play at Conseco, the city agreed to bear game-day expenses for the Colts in exchange for a lease that would keep the team in town for at least 30 years.
Rick Fuson, chief operating officer of Pacers Sports & Entertainment, said in a statement that he was pleased that the CIB is already looking at the problem.
CIB President Bob Grand said the board will need to work with the teams, the city and financial experts to get out of its trouble.
He said he was not ready to ask the Colts to renegotiate a deal that many have criticized as too generous. But he said the board will review CIB grants for the arts and other groups and try to find a way to manage its facilities better.
Grand had asked Lathrop to study the costs of the new stadium once a full season was complete. Lucas Oil Stadium, at 1.8 million square feet, is nearly double the size of the recently imploded RCA Dome, so its higher operating costs aren't surprising. Its water and electricity costs are higher, too.
With the higher costs, the CIB operating fund balance will dwindle to $5.6 million this year from tens of millions in past years.
The problem can be traced to the plans developed to finance the stadium.
City officials had anticipated covering increased costs with taxes from a proposed Downtown casino. But when the state wrested control of the building project in 2005, the new plan included no casino or other way to cover the increased operating expenses.
State officials say they never agreed to pay those costs. Under the terms of the state's financing, excess revenue from higher taxes on food and beverage sales, hotel bookings and car rentals will be used to pay off construction bond debt early rather than to cover operating costs.
Officials think an expanded convention center – expected by late 2010 – and the new business it attracts eventually will help cover the CIB's operating costs. But the board's problems are more immediate.
Grand said he did not expect the board's financial problems to affect the city's hosting of the 2012 Super Bowl. (Indianapolis Star)