Source: http://www.ogdenonpolitics.com/2009/04/legislative-recommendation-authorize.html
Timestamp: 2019-04-25 18:08:57+00:00

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In the post below, I made the case for the Capital Improvement Board to go into bankruptcy under Chapter 11. As was pointed out to me by an attorney who obviously paid closer attention in law school than I did, Chapter 9 bankruptcy, dealing with municipalities, might be the appropriate vehicle rather than Chapter 11. After looking into the matter more closely, it likely would come down to whether the CIB is viewed more as a municipal entity or not. While I hear the argument that these entities like the CIB, Airport Authority, etc. are set up to operate as private entities, frankly I've never bought that they are anything more than an extension of our city-county government. These entities perform a public service using tax dollars and user fees, and their members are appointed by elected officials. That's goood enough for me to consider them government entities, responsible to the people.
Nonetheless, the debate though gave me the chance to refresh my memory on some of the more obscure provisions of the Bankruptcy Code. After doing so, I am even more enthused about the bankruptcy option if Chapter 9 is available to the CIB. While Chapter 9 gives the Bankruptcy Court less power, that less power is more with respect to control over the debtor municipality, not the creditors (i.e. Pacers, Colts, the holders of debt, etc.) For example, in Chapter 9 the court cannot force the municipality to liquidate its property to pay creditors, for example. So the Bankruptcy Court could not order the CIB to sell downtown property to pay off debts. Unlike Chapter 11, in Chapter 9 the creditors cannot even offer their own reorganization plan.
It would, however, be helpful to avoid objections in the bankruptcy if the Indiana General Assembly specifically authorized the CIB to file bankruptcy. That bankruptcy authorization alone would also suddenly give the CIB enormous leverage in renegotiating the Colts sweetheart Lucas Oil Stadium deal. The CIB may not ever have to even file bankruptcy. The bankruptcy option, bolstered by the state's authorization, would give the CIB enormous negotiating leverage. The Colts would know that is an arrow in the CIB's quiver. Further, the Pacers request for $15 million more could go out the window as well. We're talking concessions by the team, especially with regard to the Colts, that would be worth millions of dollars and forgo the need for hospitality tax increases that will drive away convention and tourism business.
If the Colts and Pacers do not want to make concessions, then the CIB can simply file bankruptcy and let the court rewrite the contracts. As I said in a previous post, the Pacers, and especially the Colts, are unlikely to get another sweetheart deal from another city, especially in light of today's economic climate. The recession, and a bankruptcy authorization, would give the CIB enormous leverage. They need to use it.
Of course, the leaders of the CIB in the past have either been too conflicted or too clueless to be strong negotiators when it comes to professional sports teams. In conjunction with any bankruptcy authorization should be a demand by the General Assembly for a change in the makeup of the CIB, including the leadership.
chapter 9 case, there is no property of the estate and thus no estate to administer. 11 U.S.C. § 902(1). Moreover, a chapter 9 debtor may employ professionals without court approval, and the only court review of fees is in the context of plan confirmation, when the court determines the reasonableness of the fees.
chapter 9 debtor has more freedom to operate without court-imposed restrictions.
When cities or counties file for relief under chapter 9, there may be a great deal of interest in the case from entities wanting to appear and be heard. The Bankruptcy Rules provide that "[t]he Secretary of the Treasury of the United States may, or if requested by the court shall, intervene in a chapter 9 case." Fed. R. Bankr. P.
2018(c). Further, "[r]epresentatives of the state in which the debtor is located may intervene in a chapter 9 case." Id. In addition, the Bankruptcy Code permits the Securities and Exchange Commission to appear and be heard on any issue and gives parties in interest the right to appear and be heard on any issue in a case. 11 U.S.C. §§ 901(a), 1109. Parties in interest include municipal employees, local residents, non-resident owners of real property, special tax payers, securities firms, and local banks.
Special revenue bonds, by contrast, will continue to be secured and serviced during the pendency of the chapter 9 case through continuing application and payment of ongoing special revenues. 11 U.S.C. § 928. Holders of special revenue bonds can expect to receive payment on such bonds during the chapter 9 case if special revenues are available. The application of pledged special revenues to indebtedness secured by such revenues is not stayed as long as the pledge is consistent with 11 U.S.C. § 928 [§ 922(d) erroneously refers to § 927 rather than § 928], which insures that a lien of special revenues is subordinate to the operating expenses of the project or system from which the revenues are derived. 11 U.S.C. § 922(d).
Just to be clear, the objections to bailing out the CIB is the fact that they subsidize the city's professional sports teams (and others), correct? Shouldn't the proper debate be whether or not we want the Pacers/Colts in this city then? Wouldn't bankruptcy likely trigger the departure and/or sale or both teams?
If that's the case, then the departure of the Colts/Pacers a policy and political decision that must be defended.
Unfortunately, professional sports is a monopoly system in this country (unlike collegiate sports where any institution of higher education can be a Division I team if they are willing to meet the requirements financially, etc.). When you have a monopoly, someone ends up subsidizing that monopoly, which can be rich individuals or corporations, the taxpayers or some combination. But on the flip side, what you end up subsidizing ends up being a more valuable asset. If every city that wanted one had a pro football/basketball team, the Pacers and Colts would not be as valuable to Indianapolis and would likely stick around town. Since there are only 30-some teams in their respective associations, Indianapolis benefits from that exclusivity and as a result must subsidize them in the form of favorable leases and even the direct subsidies Indianapolis used to pay the Colts. Other cities like Kansas City and Louisville may be glad to take those liabilities off the hands of Indianapolis in exchange for the asset professional sports brings to a city. You can argue all you want about whether professional sports is an asset to a city, and there are arguments on both side that have merit, but the real question is whether Indianapolis wants to have professional sports. Ultimately, despite the policy arguments re: the merits of professional sports, it comes down to a political decision as to whether or not a city (or state) wants those teams to stick around.
Municipal bankruptcies will probably become commonplace before the year's out at the rate we're going. The irony is that the CIB, by drawing so much attention to its plight, ensures that its bond rating will deteriorate, driving up its borrowing costs.
First, it's pretty clear from virtually all the academic studies that professional sports teams are not much of an econmic benefit (actually some studies show they have a negative effect)and certainly not worth a large public subsidy.
Now if you want to talk about intangible PR benefits of professional sports, I think there is a better argument than that professional sports teams are some sort of economic benefit to a city. That's worth something. But it certainly is not worth the amount of public support the Colts or Pacers are getting.
Second, bankruptcy would trigger clauses in the Colts and Pacers contract that would allow them to leave. I think it's highly unlikely that the Colts or Pacers, especially, the Colts who have the mother of sweetheart deals at Lucas, would choose to relocate. They wouldn't get that type of deal from another other city, especially in today's climate. Instead, they would look at their current situation, and choose to make a concession or two on their contract, which would be worth millions and allow the city to avoid raising hospitality taxes which will shut off the very convention business we're trying to attract.
Paul, I concur re: the economics and the PR value. I think there is also a personal, sports fan, factor that has an intangible value difficult to measure. You must also put a value on what it would cost to operate Conseco/Lucas if the teams were to move.
I think the Colts would have trouble finding a better economic deal at this point, but the Pacers may be another case due to the new arenas in Louisville and Kansas City. If the city picks up the $10-15 million for operating Conseco, it'd be that much harder for another city to lure them away.
Politically, I would be very damaging to let either of these teams leave. See Seattle, where they're already in the process of trying to get a new team. See Cleveland, Charlotte and the many other cities who lost their teams, only to just pay the same amount later to get new teams back.
If you don't like the way professional sports hold cities hostage, get Congress and the DOJ to break up the cartel.
The headline is YOUR recommendation, not that there has been any informal recommendation FROM them, right?
I think entering the process is the smartest thing for the CIB to do. Maybe we'd start to see more documentation from the 'negotiations' that got us into this.
Hmmm while we are at it could the city declare bankruptcy so they could rewrite all of the inflated contracts the Peterson administration pushed through right before they were voted out of office. Just a thought.
Good point. I need to revise to make clear it's my recommendation.
One poster on another blog, mentioned that bankruptcy could hurt the City's credit rating. The CIB is a separate entity and the entity filing bankruptcy. It would take the hit on its credit rating, making it more difficult and expensive to borrow more for a few years.
I'm not sure that's a bad thing. The CIB does not need to be taking on new debt.
As far as the existing debt the CIB has, a bankruptcy would allow the principal to be reduced and you'd lock in a favorable interest rate.
Again, the downside from a credit standpoint, is only to new borrowing which I wouldn't want the CIB doing any way.
Be aware of the possibility of the City taking on the CIB under the city and then being able to petition the Indiana Bond Bank if the legislature does not bail the CIB out.
If the City takes the CIB under their control and then the bonds default the criminal anti trust laws could then be in play.
A governmental contract at the state level has already defaulted on their bonds of hundreds of millions of dollars and the state agency assisted in getting a refinanced bond deal on defaulted bonds that are in trouble AGAIN!
The CIB lawyers are some of the same that have assisted the group in their state contract that is in trouble.
The city already has an Indiana Bond Bank deal wit another private company. Please peruse the Indiana Bond Bank cities that are currently being assisted and Indianapolis is listed.

References: § 902
 § 928
 § 928
 § 927
 § 928
 § 922