Wednesday, November 26, 2014

Macquarie Laughing All The Way To The Bank Over Indiana Toll Road Bankruptcy

The Streetsblog recently provided a three-part series authored by Angie Schmitt and Payton Chung dissecting the massive private investment in public infrastructure projects like Macquarie's losing $3.8 billion investment in the Indiana Toll Road to explain just how the company manages to make money even when projects like the ITR lose so much money. As it turns out, the ITR loss was just a blip on the screen for the bank and financial services firm which has almost $400 billion under management currently. Macquarie and its partner on the ITR deal, Ferrovial, only had $374 million of their own money at risk. The other billions invested in the ITR came from seven European banks, six of which ultimately had to be bailed out by their respective governments.

Naturally, Macquarie set up a separate subsidiary which shielded the massive Australian-based company from liability for the ITR's losses. At the time it borrowed the money for the ITR, it used a form of balloon mortgage known as an "accreting swap," which offered a low, teaser interest rate. Macquarie assumed it would quickly refinance the debt until the 2008 economic collapse. The resulting higher interest rates that kicked in without a refinancing available is the reason the debt owed on the ITR was more than double the amount it had originally borrowed to close the transaction with the state of Indiana in 2006.

According to the Streetsblog analysis, Macquarie knew going into the ITR deal like other infrastructure projects in which it has invested there was a great risk of the business deal turning sour. Because of a complicated mix of fees and tax breaks associated with the project, investors like Macquarie stand to benefit even when the deal goes sour. Macquarie flips its infrastructure purchases into separate corporate entities that are sold to investors as "income trusts." According to Streetsblog, investors like income trusts because they offer higher returns than bonds, and companies like them because tax laws generally exempt them from paying corporate income taxes.

One analyst the Streetsblog quoted said Macquarie had a "perverse incentive to overpay for its assets" and likened the company to a Ponzi scheme. That's because Macquarie pays itself "handsome annual fees" fees to manage its multiple satellite companies. To encourage investment in their toll road projects, companies like Macquarie rely upon traffic forecasts that invariably are way too rosy, which is precisely what occurred in the case of the ITR. The companies which provide these traffic forecasts are often promised future business opportunities, which critics say result in "statements of advocacy rather than unbiased projections."

Streetsblog sees the ITR bankruptcy as the proverbial "canary in the coal mine" that should serve as a warning to the American public. Because of failures like the ITR, companies like Macquarie are now being forced to craft deals that shift the risk to the public when the traffic forecasts and revenue projections for toll roads fail to live up to expectations. This is precisely what is happening with the Illiana Expressway project the states of Indiana and Illinois are preparing to undertake jointly. The investors in that project are protected when traffic or tolls fail to meet expectations. Illinois and Indiana have pledged "availability payments" to backstop any revenue shortfalls, which will siphon money that would otherwise be available for highway projects elsewhere around the state.

While the primary focus of the Streetsblog series is on toll road projects, the authors think the warning should apply to the increasingly popular P3 deals, which aren't all that they are cracked up to be. "Though made in the name of innovation and efficiency, private finance deals are often more expensive than conventional bonding, threatening to suck money from taxpayers while propping up infrastructure projects that should never get built," the Streetsblog says. State and local officials in Indiana would be well-advised to heed their warnings.

Appeals Court Refers Case Of Prosecutor Using Perjured Testimony To Disciplinary Commission

The Indiana Court of Appeals reversed the conviction of a Mishawaka man on burglary charges because the prosecutor used the perjured testimony of his girlfriend, who had already pleaded guilty to committing the same burglary, and referred the matter to the Supreme Court's Attorney Disciplinary Commission for further investigation. The South Bend Tribune has identified the deputy prosecutor who worked for St. Joseph Co. Prosecutor Michael Dvorak in prosecuting the case as Micah Cox. Dvorak told the Tribune he disagreed with the opinion and planned to appeal it to the Supreme Court.

According to the facts summarized in the Court's opinion, Nicole Greenlee, the white girlfriend of Antonio Smith, had pleaded guilty to breaking into a Dollar General store alone and stealing $3,500 in her case. She later testified against Smith, who is black, that she served as a lookout outside the store while Smith broke into the store and stole the money. The store's surveillance cameras only captured a white female at the scene of the crime according to the testimony of police, although a police detective testified that cell phone records placed Smith and Greenlee at the scene of the crime as well.

The Indiana Supreme Court has previously held that the knowing use of perjured testimony is "fundamentally unfair and a conviction obtained by the use of such testimony will not be upheld." The prosecution maintains that Greenlee's testimony at Smith's trial was not perjured testimony; rather, it argues she merely provided contradictory or inconsistent testimony. Because Greenlee's testimony during her case and Smith's were both made under oath, the Court of Appeals concluded one of them was necessarily false. The Court of Appeals added this footnote to the case referring it to the Disciplinary Commission for further investigation:
The Indiana Supreme Court Disciplinary Commission (“Disciplinary Commission”) has exclusive jurisdiction to discipline an attorney, where appropriate, for acting in violation of the Rules of  Professional Conduct. We are troubled that the State knowingly proffered perjured testimony but are even more concerned that the State granted the witness immunity from prosecution, which encouraged such testimony. Thus, we direct the Clerk of this Court to send a copy of this opinion to the Disciplinary Commission. We also note that instances of prosecutorial misbehavior continue to come before us on appeal notwithstanding our admonishments. See Joel Schumm, “Isn’t it Time to Get Serious About Prosecutor Misconduct?,” The Indiana Law Blog (July 7, 2014), http://indianalawblog.com/archives/ 2014/07/ind_courts_isnt.html.

Book By Daniels Friend Says Governor's Residence Used For Campaign Purposes

It's always been common knowledge former Gov. Mitch Daniels never resided at the state's official residence for the governor on North Meridian Street during his eight years in office. Now a new book by a political adviser to Daniels claims it was used for political fundraising activities aimed at touting a potential run for president in 2012. PR flack Don Cogman's book, "Run, Mitch Run: The Hard Decisions One Man Faced For The 2012 Presidential Election," says Daniels' Aiming Higher PAC was more about promoting his presidential ambitions than electing a Republican majority in the Indiana House. The Journal-Gazette's Niki Kelly focuses on this tidbit in Cogman's book:
A newly-released book about former Gov. Mitch Daniels’ almost-run for president is full of juicy political tidbits but also has raised ethical concerns.
The key questions are whether it was appropriate for him to use the Governor’s Residence – where he did not live – for political dinners and fundraising and whether the Aiming Higher Political Action Committee was used improperly . . .
“What was most interesting was the mention of detailed political meetings that took place at the Indiana Governor’s Residence, which were then followed by requests for contributions from donors,” said Indiana Democratic Party Chairman John Zody. “The governor never lived in the residence during his eight years in office, so why was it used for politics?”
A message seeking comment from Daniels – who is now Purdue University president – was not immediately returned Tuesday.
The latest revelations come from “Run Mitch, Run: The Hard Decisions One Man Faced for the 2012 Presidential Election” by Don Cogman 
Cogman was one of eight close friends and colleagues of Daniels’ who worked behind the scenes for more than a year on a pre-presidential campaign that was far more organized than most people realized . . . 
But one new slant from the book was that Daniels and his “group” used the Aiming Higher Political Action Committee to get the dollars flowing. Aiming Higher was organized to elect a Republican majority in the General Assembly. 
But the book reveals it was used for more than that. The book said the only way to get people from outside Indiana to contribute to the PAC “is to position it as a way to support him and encourage him to seriously think about the presidential race.” . . . 
Just another example of the utter incompetence of State House reporters when it came to covering anything concerning Mitch Daniels. There was a Pulitzer Prize to be won by a good investigative reporter, but they all preferred the role of being cheerleaders instead. Under Indiana's Constitution, the governor is required to live in Marion County. Although the media briefly raised that issue when it learned Daniels was moving into a new mansion he had built up in Carmel instead of the official residence so Cheri would play the happy wife, it quickly dropped the matter. Daniels still registered to vote at the governor's official residence, a fact that irked former Secretary of State Charlie White, whom Daniels quickly threw under the bus by asking him to resign over accusations he lived somewhere other than where he was registered to vote. With a full-court press of the State House reporters summoned to action by Daniels, White was vilified by the media and eventually prosecuted and convicted of six bogus felony charges related to his alleged illegal voter registration. The illicit use of the governor's residence and his political action committee is just more of the many things that went unreported during Daniels' tenure as governor.

Tuesday, November 25, 2014

Opposition To Digital Billboard Proposal Growing


A move by the billboard industry to do an end-run around the Indianapolis' current zoning restrictions against digital billboards through council action is meeting growing opposition. Last week, the Metropolitan & Economic Development Committee approved a proposal drafted by lobbyists for the billboard industry to dictate changes in the City's zoning laws it wants to see to specifically benefit the owners of existing billboards by allowing them a process to begin converting some of those static billboards to digital signs. That effort has outraged local neighborhood leaders. One early backer of the proposal, Joe Simpson (D), tells WTHR's Mary Milz he now plans to vote against it.
 . . . Democratic Councilor Joe Simpson, who co-sponsored one proposal with Republican councilor Aaron Freeman, said he's been inundated with calls from opponents "upset this proposal was not brought before the community." 
"This proposal jumped over our proposal. It came out of nowhere. I think they were just wrong the way they presented," Simpson said.
He plans to ask councilors to vote it down Monday and have backers return with a new proposal . . . 
Milz appears to be the only person in the local media to bother reporting on the issue to date. The debate has primarily taken place on local blogs and social media. You knew the billboard industry was getting worried when they stooped as low as to engage the egomaniac "opinion for hire" radio talk show host on WIBC to pimp for their cause.

UPDATE: I spoke too soon. Fox59 News' Liz Gelardi also has a story up now. Councilor Jeff Miller, who discussed his views on the issue on this blog, tells her he plans to vote against it.
. . . “The biggest issue is that the process hasn’t included the public so we have no basis on which to decide if the public wants digital billboards or not,” said Pat Andrews, 
Council Member Jeff Miller said he plans to vote no on the proposal or send it back to committee for further debate.
“I think a lot of people are not even aware this is being discussed and then from there we need to facilitate those meetings for people to come learn about it, give feedback. You know a lot of people have good ideas, small things that can sometimes make a very big difference and that’s why it’s so important that people feel involved in the process,” said Miller.
Councillor Miller said he’s not necessarily against digital billboards he just wants to see more opportunity for residents to voice their concerns and ask questions . . . 
The billboard companies are seeking a delay in the vote previously-scheduled for next Monday night's council meeting.  It looks like the proposal will be sent back to committee.

Tew Election To Council Expected At Tonight's Democratic Caucus


Marion Co. Democratic precinct committeepersons caucus tonight to fill the vacancy created when Zach Adamson gave up his at-large seat on the City-County Council to take the place of District 16 council member Brian Mahern, who recently resigned his seat to begin a new job at the Marion Co. Assessor's Office. Former Marion Co. Democratic Chairman and lobbyist Kip Tew is the only candidate expected to seek election at tonight's caucus meeting to the at-large seat vacated by Adamson, one of the four at-large positions eliminated as a result of a state law enacted by Republicans in hopes of weakening Democrats' narrow hold on control of the council. Tew, who is very close to Democratic mayoral candidate Joe Hogsett, is expected to run for election next year in the newly-drawn District 2 against Republican incumbent council member Will Gooden.

More Ballard Lies: We Knew All Along Criminal Justice Center Would Cost At Least $500 Million

When the Ballard administration unveiled its plan to use a P3 agreement to construct a new criminal justice center a year ago through the City's shadow government, the Greater Indianapolis Progress Committee, it placed the cost of the new facility at a little over $300 million. Now the administration claims it knew all along the construction cost would be $500 million after receiving bids from three foreign-led investment groups. Deputy Mayor Adam Collins told WTHR's Mary Milz yesterday afternoon the administration had "estimated from the very beginning this facility would cost $500 million."

The true cost is several times that $500 million figure because the City will be locked into making payments to the private developer for the next 35 years. The RFP the administration illegally refused to make public until yesterday pegged those annual fees at $50 million a year. Collins told yet another lie to Milz in explaining why the administration refused to at least acknowledge it had told the bidders the City placed a cap of $50 million on the annual payments. "The reason we kept quiet is we didn't want to prejudice the market and allow (the bidders) to think how much we were willing to spend on a particular facility," Adams told Milz. The only reason to keep it secret, along with the entire RFP in violation of law, was because the entire bidding process was nothing but a sham.

When the administration finally released the RFP, local media was using that $50 million figure to estimate total costs over 35 years at $1.75 billion. Anyone with a clue knows these deals always have cost-of-living allowances. Sure enough, the RFP provided a payment schedule where those $50 million payments would grow to more than $68 million during the life of the agreement. Total payments would approach $2 billion, not $1.75 billion, or about four times the actual cost. "There's a possibility, not based on performance but based upon cost of living or something like that over a 30-year period," Collins said.

Collins goes on to tell yet another lie to Milz by claiming the P3 arrangement is cheaper than if the City relied upon traditional bond financing to build the facility itself. "Even so, Collins said leasing a facility would be cheaper than the city building one itself." "We're confident that whichever bidder we choose will provide the taxpayer with a significant cost savings above and beyond our own estimates," he said. Anyone with a brain knows that the huge fees built into a P3 agreement to benefit the private developer wind up costing far more than traditional financing and self-management costs. The P3 costs are at least 40% to 50% higher. A P3 approach is preferred because the corrupt politicians don't want to do a straight up property tax-backed proposal that would be subject to voter approval at a referendum, and because there is a greater opportunity for more kickbacks to the political insiders to profit from a P3 deal. Let's be honest.

UPDATE: According to the council's CFO, Bart Brown, the administration plans to help cover the cost of the payments from nearly $3 million it intends to collect in parking fees to for visitors when they visit the criminal justice center. The City provides free parking to Simon Property Group's employees, but if you have to visit the criminal justice center, the City is going to make you pay for parking, which sort of defeats the purpose of moving the complex outside of the downtown where free parking is a luxury. The jail is also adding at least 1,000 more bed spaces than it needs in order to rent bed space to the feds, which would supposedly generate $3 to $5 million a year. The administration is also assuming $10 million in personnel savings from the sheriff's office, which is laughable. We're talking about the same sheriff's office which actually managed to spend tens of millions more after the merger of the law enforcement functions of the sheriff's department into IMPD.

Monday, November 24, 2014

IMPD Officer Shoots Unarmed White Guy


Ryan Hubbard
As the nation learns of the grand jury decision coming out of Ferguson, Missouri tonight that no charges will be filed in the shooting death of Michael Brown by a white police officer, Darrell Wilson, there was a near fatal shooting of a 37-year old, unarmed white man by an Indianapolis Metropolitan Police Department officer hours earlier.

IMPD officers approached Ryan Hubbard on S. Keystone Avenue near his house on the City's south side to serve an arrest warrant on him in connection with a drug investigation around 12:15 p.m. Police say Hubbard acted fidgety and appeared to be reaching for his waist when an officer fired about three shots at him, striking him. Police later discovered he was unarmed. Here's how Fox59 reported IMPD's justification for shooting the unarmed suspect:
. . . When they approached Hubbard on the street, he appeared “fidgety” and looked like he was reaching for his waistband. 
He refused orders given by police to show his hands. 
“He reached to his waistband several times and was fidgeting with his waistband,” said IMPD Sgt. Kendale Adams. “At which point officers made the determination that deadly force was appropriate.” 
That’s when an officer fired an undisclosed number of shots, hitting Hubbard. The man was taken to Eskenazi Hospital in critical condition, but was later upgraded to stable condition. 
Police said the suspect was not carrying a weapon. 
“It’s important to understand that officers don’t have to wait until they see a weapon to believe they’re going to be engaged in a gun battle.” 
Hubbard was about to be arrested for narcotics and was on parole for the same thing, police say. He was also being investigated on suspicion of physical abuse against his mother. 
Dan Deno, who lives across the street, says he heard three pops and knew immediately that it was gunfire.
“So when I looked out my front door, with this being right across the street, I could see really well and could see that somebody was on the ground,” Deno said . . .
Although Hubbard's condition is listed as critical, it is believed he will survive his injuries. According to the Odyssey court case management system, a number of felony drug-related charges were filed against Hubbard last Friday.

35-48-4-1(a)(1)/F3: Dealing in a Narcotic Drug Manufacture/Deliver/Finance-Sched. I or II narcotic
35-48-4-1(a)(1)/F4: Dealing in a Narcotic Drug Manufacture/Deliver/Finance-less than 1 gram/enhancin
35-48-4-1.1(a)(1)/F4: Dealing in Methamphetamine Manufacture/Deliver/Finance-less than 1 gram-enhanc
35-48-4-6(a)/F5: Possession of a Narcotic Drug Possession-less than 5 grams-enhancing
35-48-4-6(a)/F5: Possession of a Narcotic Drug Possession-less than 5 grams-enhancing
35-48-4-6.1(a)/F5: Possession of Methamphetamine Possession of les

With the encouragement of CNN's live coverage, protesters gathered in Ferguson, Missouri have now turned violent, destroying property and looting businesses at today's grand jury decision. Protesters are throwing bricks and other objects at police, who are firing tear gas into the crowds in an attempt to disperse the crowds.

Criminal Justice Center To Cost At Least $1.75 Billion Over 35 Years

Now that the bids from the three handpicked bidding teams led by foreign investors for construction of a new criminal justice system have been submitted, the Ballard administration has finally disclosed to the public that bidders had to agree to charge no more than $50 million a year for construction of the nearly half-billion dollar project according to the Indianapolis Star. The Ballard administration has refused to disclose the contents of the RFP it issued to the competing bidders up until now in clear violation of Indiana law. The administration plans to upload the RFP to the City's website for the first time later today.

The Ballard administration claims it will actually save taxpayers money by having a new center built to house the county's jail system and criminal courts. It says it currently spend $120 million annually for the criminal courts and the county's two jails. Part of the deal means ending the $19 million a year contract the sheriff currently pays to Corrections Corporation of America to operate Jail II. City-County Council member Angela Mansfield (D), who chairs the Administration and Finance Committee, says she doesn't trust the administration's cost estimates. "This administration has a history of rising costs on projects and doing things halfway and not in public," she said. "I don't trust it. The plan doesn't consolidate all of the criminal justice agencies at the new center as originally envisioned--a move apparently made to hold down the buy-in costs. The plan, however, includes an opportunity to the P3 operator to expand the existing project in future years to further consolidate all agencies at the new center.

Taxpayers have already shelled out over $12 million for no-bid professional services contracts the administration issued last year to begin work on the project. The Ballard administration claims those costs are being repaid if the council approves the 35-year deal; however, the taxpayers turn around and repay those costs again with interest since they are rolled into the $50 million fee being paid to the private operator over the 35-year period. The notion that a $50 million annual expense is being traded for the current $120 million costs is extremely misleading. There are many costs not included in that $50 million figure that are included in the $120 million figure. Make no mistake about it. At the end of the day, it will cost more annually for the criminal new justice system than what is currently being spent. In addition, the $1.75 billion figure is arrived at by multiplying the $50 million annual payment times 35 years. I'm pretty certain the $50 million is just for starts. There is likely an escalator clause that increases those payments during the life of the agreement if it is structured like other P3 agreements.

UPDATE: Sure enough the RFP allows for escalating payments to as high as $68 million a year. The center's payments will cost at least $2 billion over the 35-year period. If my math is right, the City could borrow the money by issuing 30-year bonds at today's low interest rates, have annual payments of about half, or $25 million  less than what it will be paying to the P3 operator and would wind up paying less than half what it will wind up paying to the P3 operator, or about $1 billion less.

Carmel Has Spent Over $35 Million On Parking Garages

As part of the City of Carmel's development efforts in recent years, six parking garages have been constructed using city tax dollars, two of which are owned by Pedcor, the politically-connected developer with close ties to Carmel Mayor James Brainard whose owners have become multi-millionaires, in part, thanks to the many city-subsidized projects Brainard's administration has approved. According to a summary of those parking garage projects detailed in a story by the Star's Chris Sikich, taxpayers have financed at least $35 million of the constructions costs for those six garages. In addition, City taxpayers are shelling out at least $400,000 a year on maintenance fees associated with running the four owned by the City. The actual costs of those parking garages is much higher since interest payments are made on bonds issued to finance construction of the garages.

Mayor Brainard is currently seeking council approval for yet another parking garage as part of a public subsidy being offered for yet another private development project. That parking garage will cost city taxpayers $13 million. Debt service on all of the parking garages are repaid using tax increment finance dollars. Missing from Sikich's story is the fact that Brainard is a big booster of a multi-billion dollar metropolitan mass transit plan that will be financed by raising income taxes on taxpayers in Marion and the surrounding suburban counties. Similarly, the City of Indianapolis continues to subsidize construction of one new parking garage after another at the same time Mayor Greg Ballard says an expanded mass transit system is essential to making Indianapolis a "world class city." Does anyone else see the disconnect between their words and policies?


Sunday, November 23, 2014

Council Moves Forward With Yet Another Tax Increase


Next year your property tax bills are going to increase under a plan passed by the Public Works Committee with little discussion or even general understanding by the Indianapolis City-County Council members who voted on what the plan encompasses. The proposal will increase stormwater management fees that appear as part of your property tax bill, which do not apply against the property tax caps mandated by the state's constitution, to triple the amount currently collected annually from $10 million to $30 million. Those increases will fall primarily on homeowners, and it's not just a one-time increase. Automatic rate increases can be imposed over the next 20 years without any council action.

As is the case with so many proposals before the council, the members appeared completely ignorant of what exactly it was that they were voting upon. Fellow blogger Pat Andrews tried to educate the members on the shortcomings of their proposal, but her comments largely fell on deaf ears. According to Andrews, the proposal raises an additional $10 million to pay for operations, or a total of $15 million. About $15 million a year will be made available for capital projects; however, at least $5 million of that amount will be used to pay off old bonds. The effect of the proposal is to free up about $10 million in the current city-county budget that is spent to cover operating expenses concerning stormwater management according to Andrews. It supposedly provides a sufficient revenue stream to address the cost of undertaking stormwater management projects over the next 20 years.

One of Andrews' most pointed criticisms of the past stormwater fees approved by the City-County Council is that the past fee never lived up to its promises of being put towards new stormwater management projects. Instead of putting the initial $5 million a year towards new capital projects, most of the money wound up getting used to pay off old bond debt. A subsequent $5 million a year increase actually provided the additional $5 million a year needed to fund new capital projects--until the Ballard administration decided to sell off the sewer and water utilities to Citizens Energy. We've all seen our sewer and water bills skyrocket, in part, to pay higher debt to pay for the nearly half billion overpayment Citizens Energy paid to the city to buy the utilities, which was used for infrastructure projects, including the mayor's cricket field. More importantly, DPW lost $6 million a year the utilities spun off to pay for its operating expenses with the sale. As a consequence, the city diverted money intended for stormwater projects to cover DPW's operating expenses.

So now the City-County Council is going to allow DPW to triple the amount collected from stormwater fees, plus allow the fees to be raised annually for the next 20 years with the promise the money will get spent this time to pay for the projects the first two stormwater fee increases supposedly funded. The fee increase on homeowners is being masked as a fairness issue. Homeowners currently pay a flat fee per parcel. Under the proposal, they will now pay a fee based on the amount of stormwater runoff theoretically generated by their property, which can result in four-fold increases in some cases. As Andrews surmises, it's likely a plan designed to shift DPW's funding to provide additional funding elsewhere. At any rate, homeowners will be hit with another $20 million tax increase and every year thereafter for the next 20 years, on top of the 10% income tax increase you will start paying on January 1. The council committee's discussion was alarming in the sense of just how wilfully ignorant the council members are when making decisions that affects their constituents' pocketbooks. The local media won't tell you about that fact, but now you know. It's also obvious why the Democrats didn't want Andrews on the council when she ran the last time. God forbid we elect someone who actually knows something.