CIB Abruptly Drops Privatization Move

Three weeks after this blog exclusively reported on a troubling conflict of interest facing CIB board member and former Chief of Staff to Mayor Ballard, Paul Okeson, the City has announced it is dropping its recent initiative to privatize the operation of CIB facilities. “There are no plans to pursue a large-scale outsourced contract at this time,” Deputy Mayor Michael Huber told the IBJ's Peter Schnitzler. “But we’ll do anything we think is in the long-term best interest of the taxpayers.”

In a May 12, 2010 post, this blog called on Okeson to resign from the CIB after discovering that his new employer, Keystone Construction, had partnered with John Bales' Venture Real Estate in a proposal to operate the CIB facilities submitted by CB Richard Ellis. Okeson has served as the point person on the board renegotiating the terms of the Pacers' current long-term lease on Conseco Fieldhouse, which requires the NBA team to pay a minimum $50 million penalty to the City of Indianapolis if it decides to sell the team and relocate it to another city. The Pacers organization, which claims it loses tens of millions of dollar annually on the team, had set a June 30 deadline for the CIB to provide it an additional $15 million a year subsidy to operate and maintain Conseco Fieldhouse to avoid the loss of the NBA team. Ironically, Pacers Sports & Entertainment, which already operates Conseco Fieldhouse, also submitted a proposal to manage the other CIB facilities in response to the City's Request for Information in competition with the proposal submitted by CB Richard Ellis. Pacers Sports & Entertainment's proposal involved a four-way partnership that included the participation of the Indianapolis Visitors & Convention Center, a nonprofit which receives more than $10 million in funding from the CIB annually.

Throughout the negotiations with the Pacers, Okeson has made it clear that he believes the CIB must come up with the $15 million a year subsidy demanded by the Pacers to avoid losing the team. The Pacers are not required to make their audited financial statements available to the public that would show whether the team is making or losing money despite the huge financial subsidies the CIB has paid to the team over the years. Under its current lease, it pays no rent and keeps the revenues it generates from Conseco Fieldhouse; however, it is required to pay for the operation and maintenance of the building, unlike the Colts, which gets the use of Lucas Oil Stadium rent-free and pays none of the stadium's operating and maintenance costs. Those $20 million in additional costs after the stadium opened sent the CIB's budget into the red and led to last year's tax increase and plan to borrow $27 million from the state over three years to close the deficit. The CIB has paid for several million dollars' worth of operating and maintenance cost on Conseco Fieldhouse over the past decade that it was not legally obligated to pay and allowed the Pacers to avoid paying for the use of parking facilities as called for in the lease agreement, another deviation from the lease agreement that has cost taxpayers millions.

Because the Pacers organization had not cried foul over Okeson's participation in renegotiating the terms of its lease, this raised the concern of potential collusion in the privatization proposal in which both Pacers Sports & Entertainment and Okeson's firm were competing to win. The Board's president, Ann Lathrop, said the current negotiations with the Pacers factored into the decision to table the privatization plan for now. "City officials have been negotiating for months with the Pacers over whether the city should take over $15 million  annual Conseco Fieldhouse operating expenses," Schnitzler writes. "Lathrop said those negotiations also bear on the decision to table privatization, but she declined to share details on the talks or a time line for a deal."

This week's announcement surprised SMG, one of the largest operators of public facilities in the country, which also submitted a proposal in response to the City's RFI. "SMG, whose portfolio includes five NFL stadiums and more than 200 venues, hadn’t heard anything from the city since responding to Ballard’s initial request last year," Schnitzler writes.. "The mayor originally pursued privatization because firms like SMG have the scale to find additional cost savings and the connections to increase bookings, boosting revenue," Schnitzler writes. “Our understanding was that the city was going to further examine the issue,” Ginty said. “Absolutely, we would like to pursue it. I think we are the premier company that does this.”

I'm surprised Schnitzler didn't dig deeper into this story like he normally does.