Did The Ballard Administration Violate Contracting Laws By Signing More Than $12.6 Million In No-Bid Contracts For Criminal Justice Center Project?

IT DEPENDS ON WHAT THE MEANING OF "IS" IS
The Administration & Finance Committee kicked off the start of the 2015 City-County Council budget by discussing the controversial discovery this past week that the Ballard administration had entered into seven no-bid professional services contracts this past year for work on a proposed but not approved plan to build a new criminal justice center under a public-private partnership arrangement (P3). Everyone is in agreement that there was no specific appropriation for this project in the current budget, or for any of these individual contracts for that matter. The question is whether the manner in which the Ballard administration entered into these contracts was consistent with Indiana law and local ordinances.

The council's attorney, Fred Biesecker, outlined to the committee the controlling laws. Indiana law essentially makes any contract void for which there were not available appropriated funds at the time the contract was executed to cover the costs of the contract. The City-County Council, upon written determination that funds were not appropriated or available to fund a contract entered into, can cancel a contract. Any contractual obligation that exceeds appropriation authority is void. It is unlawful for the city controller or the county auditor to authorize payments on a contract unless there is available appropriated funds to be used for that purpose. There are civil penalties for violating the law, including fines, injunctive relief and removal from office.

What the council's CFO, Bart Brown, determined was that the total amount of the contracts entered into exceeded $12.6 million. There was no schedule delineated in the contracts for when those funds could be encumbered. To date, the city controller has sent to the auditor's office about $2 million in invoices that have already been paid, half of which went to a Los Angeles law firm, Nossaman LLP, which has been involved in P3 projects in the past, including the Long Beach, California courthouse project. It is permissible to enter into a multi-year contract that exceeds the current appropriation authority within the current budget; however, the contract needs to provide a schedule of payments that is limited to current appropriation authority. None of these no-bid contracts signed by the Ballard administration contained a schedule of payments by fiscal year. Theoretically, they authorized the payout of up to $12.6 million this year.

It is undisputed that there was no discussion or inclusion of any money in this year's budget for professional services related to the criminal justice center P3 project. Even though the Ballard administration was in the process of negotiating these contracts at the time the 2014 budget was being considered by the City-County Council, it did not disclose their existence or how much they would cost during the 2014 budget year. These contracts were signed on various dates as far back as last October but entered into the contract database as sequentially-number documents. City Controller Jason Dudich negotiated to delay a rent payment due this year on buildings occupied and leased to city-county agencies by the Marion County Building Authority. That single budget maneuver freed up about $2.1 million to shift from rent obligations within the character 3 line item in the current budget to pay out for these various professional services contracts. The city still has a little over $200,000 left from this budget trick to spend on the professional service contracts this year.

During testimony to council members, Dudich very arrogantly defended the budget maneuver as perfectly legal and indicated that he could make further payouts this fiscal year to pay these contractual obligations if he is able to free up other money from within character 3 in a similar fashion to authorize those payments. He asserts that under the contemplated P3 agreement, which is still at least subject to council approval, if not Marion County voters by referendum, will allow the city to recover these professional fees. Of course, that's not entirely true because you can bet that those expenses will be built into the annual obligations city-county government will have under any final, negotiated agreement with a P3 provider.

What is clear is that every single one of these contractors have a vested interest in seeing this deal through to fruition regardless of how bad of a deal it might be for taxpayers. As an example, KPMG is supposedly providing financial consulting services to the city-county government on this project; however, it receives what amounts to a large bonus or contingency fee that is only payable if the deal is approved. As I previously pointed out, KPMG provided similar consulting services on the much-criticized Long Beach, California courthouse project that will cost taxpayers there close to $2.5 billion over the life of the agreement for a building that cost about $325 million to construct. As far as the Ballard administration is concerned, it is a foregone conclusion that this deal will be approved--a deal that could easily cost taxpayers $4 to $5 billion over the life of the agreement. So we accomplish the largest, single obligation of the city-county government in its history by a slight-of-hand budget maneuver accomplished by deferring our current rent obligations. Only in Indianapolis.

The Democratic members of the Administration & Finance Committee were not amused by the lack of transparency in how the contracts were entered into regardless of their legality. Republican Councilor Ben Hunter, naturally, defended the fraud that has been perpetrated on the council and the public, proving once again that he could care less about transparency in the budget process. He similarly scoffed at questions about the administration's execution of the one-sided ROC lease. At a minimum, the Ballard administration deceived the council and the public by omission during last year's budget negotiations. It knew it was going to enter into these contracts and start spending large sums of money for this purpose but chose not to disclose this fact. County Auditor Billie Breaux told the Committee she would not authorize payment of any further sums this year for this purpose until it is clear to her that legal authority exists for their payment. The Committee also recommended over the objections of the Republican committee members that the council move forward with the drafting of a resolution that would call for the cancellation of the contracts, for which it finds funds have either not been appropriated or are not available for this purpose.