Friday, May 14, 2010

A Brief History of the Capitol Improvement Board: When Will We Learn?

I regular read the blog Indy Tax Dollars written by Fred McCarthy. As the name suggests, he focuses on local tax issues. He, like many other local bloggers, is against the bailout of the Pacers by we the people. But is this a new phenomenon, or have we just not learned from our past?

I know it's long, but read the whole thing:

I took out a half page ad in our local paper regarding public funding of private sports teams. A recent IBJ Editorial titled “Shed More Light on Pacers’ Plight” regarding the possible increase of public funding for the Indiana Pacers, the Editor states factually that “the franchise has been an economic engine for downtown” as if that was an indisputable fact.

I had a business in downtown Indy and was President of the Downtown Restaurant Association, and had plenty of problems with the teams, the taxation on my business to support them and finally left town for greener pastures after 15 otherwise successful years at that location. I thought you might appreciate the following information.

If that is true, then the Pacers are the only sports team that has ever been an economic engine for any city……as every independent academic study every done comes to just the opposite conclusion. So let me shed the real light……

By way of example, Jim Irsay thought the Colts were an obvious economic engine and hired the Kelly School of Business at IUPUI to document it. So anxious was he to demonstrate this fact that he scheduled a press conference to tout the study to the tax-paying world. Problem is, he hadn’t read the report and when he did, the results so clearly demonstrated there was no significant economic impact that he cancelled the press conference and the study never saw the light of day. The chief author of that study later released a book titled “Major League Losers” using the Colts as one of the primary examples where he documented that any team’s effect is “minuscule on the economy of a city or even a region” and that “they produce few jobs, little tax revenue, and a negligible positive impact even on their own immediate neighborhood”. That was also a book produced by the Brookings Institute called “Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums” which I purchased and sent to Peterson and every sitting City Council Member. Quoting from the Brookings summary; “15 collaborators from universities across the nation, examined the local economic development argument from all angles: case studies of the effect of specific facilities, as well as comparisons among cities and even neighborhoods that have and have not sunk hundreds of millions of dollars into sports development. In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.” (For more info check out

Later, the Capital Improvement Board purchased a study at a cost of over $100,000 from Coopers Lybrand whose task was not to produce an independent analysis but rather was told by the Peterson administration to prove there was a big positive impact. That firm dutifully saluted and at an average taxpayer cost of $13,000 per page most people would take dictation. It is just a shame the press did not actually read it. The primary basis for their assertion was an exit poll of over 800 Colts ticket holders at a winning game asking the probing question, “Do you think there is a positive economic impact by the team on Indianapolis?” and the resounding answer was “Yes”! I don’t know how anyone can call a public opinion survey of the attendees an econometric study, but it sure shows you can fool all of the people at least some of the time. Unless the economic benefit the ticket holders were referring to was having the cost of a ticket subsidized through the public coffers. Never once did the study group ask any hotel, restaurant or retail establishment who was paying taxes to Irsay what their opinion was and I hope everyone remembers that Irsay also refused to open his team’s books at the same time he was holding his hand out.

Even though receipts were truly smaller than other NFL franchises, it was widely reported (except here in town) that since his team was not carrying any major long term debt load, that the Colts were actually one of the most profitable teams, if not the most profitable team, in the league.

Now after the Conseco Fieldhouse was built, Indianapolis Downtown Inc reported in their annual reports about downtown that sales at the Top Ten downtown restaurants declined for the next three years by an average of 10% each year (they checked sales tax records) which amounted to millions of dollars in lost tax revenue to the Tax Increment Financing District.

IDI then blamed the downturn on the economy after 9/11, but when I pointed out that in the same period the industry enjoyed an average 4% annual growth in sales nationally, in our state, and even in Marion County (according to the increases in the food & beverage tax collections), IDI had run out of excuses and got right on solving the problem – they stopped checking and reporting on the sales decreases in their annual report. Their answer was the traditional see no evil, hear no evil, so don’t report about the evil. This, despite the fact that over 3 dozen downtown restaurants, the ISO and the IRT signed a petition to the Mayor listing all the problems, many related to parking and traffic, the Fieldhouse had created for downtown which was causing a net loss of business. IDI was well aware that the neighborhood knew what the problem was and their own expert on parking agreed with us, so they fired him and got a new guy who would respect where his paycheck came from. IDI was a major roadblock and, along with the Pacers themselves, had a fully funded, independent study on the problems created by the Fieldhouse killed by Peterson’s Economic Director, (that would be Melina Kennedy). As an aside, will somebody please tell me why a neighborhood group like IDI continues to get $1,000,000 annually in taxpayer subsidy, especially in these times, instead of relying on the membership like for instance the Chamber of Commerce?

The Pacers smiled politely at neighborhood meetings and said they would do anything the Mayor wanted them to do to solve any problems, while all the time insisting there was no problem and having the clout behind the scenes to make sure nothing was done, especially about some nasty parking situations they had created. To add insult to injury, this was at a time they were not paying the contracted for $3.45 million per year for the Fieldhouse parking garage so they had a free parking garage and lots of unwarranted parking profits which they somehow did not disclose and for which they are now in arrears for almost $40 million dollars. And to further add insult to injury, Melina Kennedy made sure the Simons got their own parking garage at their new headquarters so they would have free parking at a tax payer cost of another $14 million dollars. The Simons were also claiming at that time they would leave Indianapolis if they did not get a free parking garage for their employees. Will Indianapolis never learn?

And what do you want to bet that if the team’s books were examined as the IBJ suggests a big part of the losses the Pacers say they are experiencing is a line item for a $3.45 million annual cost they should be repaying to the taxpayer for that parking garage but never will? Some pretty good sums of public money have already been paid out for bouncing that big rubber ball.

And when I pulled out of Indianapolis 4 years ago I was generating over $250,000 annually in taxes, some of which went to the Tax Increment Financing District. Many others left the district for greener pastures too, revenue the CIB could now surely use and would have had if they had listened to the neighborhood.

I and over 20 others closed their downtown businesses citing Fieldhouse related problems as a primary reason. As a matter of fact, the IRS code provides tax relief to businesses if there is a catastrophic occurrence, such as a flood, earthquake, or Katrina like hurricane. In my filling for that relief, I extensively detailed those problems and the lack of any net positive economic benefit, and conclusively proved the many negatives in a report so thorough and complete the attorneys said it was the best documented case they had ever seen and later the hearing officer did not even question if the relief should be granted. It was just a matter of “how much”. In the proverbial “Miracle on 34th Street” tradition, an official agency of the US Government pronounced that the Capitol Improvement Board and its facilities had the same catastrophic economic affect on downtown Indy as a hurricane did to New Orleans. It took three years, but I got the refund checks just last month.

Now don’t get me wrong, I do understand there is a big bonus to a city through any team’s publicity value (at least when the team members are not pulling guns or throwing punches) but the public cost of that publicity is very, very, high. It is great to have the team’s name on TV and T-shirts. A population, or at least its sports fans, can all come together and cheer, feel warm and cozy and sing kumbaya. All a public subsidy really does is free up cash for a team’s owner and whichever franchise has the most free cash can afford the highest priced players. That’s it. It has been proven time and time again by every single truly independent study ever done.

So if the publicity is really worth the price tag, pay it. If it’s not worth it, don’t. But to say that the public cost is really an ‘investment’ that pays for itself due to some big economic benefit is a big lie.

You can fool some of the press all the time, and you can fool all the public some of the time, but you can’t fool all the Hoosier’s all the time, can you? I hope not, because if ever there was a big lie, this is it. Don’t get fooled again.

Ted Bulthaup
Former owner, Hollywood Bar & Filmworks
Former President, Downtown Restaurant Association

UPDATE: I'm attempting to investigate these claims.

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