Socializing Risk, Privatizing Profit and Evading Referenda

Let’s talk about the proposed Criminal Justice Center, shall we?

First: I think the project itself makes all kinds of sense.

Second: The way it is being planned, financed and constructed makes no sense at all–if by “making sense” we mean serving the public interest and creating a long-term public asset.

It’s the parking meter fiasco redux. The city could have upgraded the meters for a relatively reasonable sum, raised the rates as the vendor did, and retained additional millions of dollars to be used for public purposes. Instead, we enriched a private contractor and ceded control of our parking infrastructure for fifty years.

The proposed approach to the construction of the Justice Center promises to be far, far worse, because all of the incentives are perverse. The current plan (to the extent the Administration has shared any information, which it has been largely unwilling to do) has private developers designing, constructing and financing the center, then leasing it to the city.

The “virtue” of this approach is simple: the Administration has devised a clever financing mechanism that allows it to avoid the pesky requirement of a public referendum and the level of public scrutiny such a referendum would require. (Any project that would result in taxes exceeding the now-constitutional tax cap must be submitted to public vote.)

The defects of this approach are numerous.

  • It will cost more. Cities with excellent credit ratings (Indy’s is triple A) can borrow money at lower rates than private entities.  I’m told the interest rate spread is at least 2%; on 500 million dollars, that’s a chunk of change. Furthermore, private entities must include a profit (and usually cover taxes) in the quoted price.
  • That need to build in a profit margin is a powerful incentive to cut corners on design and construction–decisions will be based on return on investment considerations rather than quality and/or the long-term value of what will eventually be a public asset. (As my husband says, public financing gives us buildings like the old Federal Courthouse; leasebacks give us buildings like the post office on South Street.)
  • Public projects of this size and scale provide lots of opportunities for crony capitalism–for spreading the goodies among one’s political donors and friends.

And there remain important unanswered questions.

For example, what happens if the City defaults, or finds future revenues insufficient to make lease payments high enough to cover those higher costs? The Administration’s estimate of available revenues includes some highly problematic “savings” it anticipates by reason of the new construction. Which City services will be sacrificed to ensure that the required payments are made? Will our already underfunded public safety budget be cut? Will even more roads go uncleared or unrepaired? Will our public parks be even more neglected?

The problem with “deals” like this one– delivered to the City Council as “take it or leave it” propositions with no meaningful opportunity to ask tough questions or consider potentially superior approaches–is that we taxpayers get stuck with decades-long liabilities agreed to in the dark by people who will be long gone when the bills come due.


  1. You don’t save money by selling all the furnishings in your house. You might temporarily change the “cash on hand” portion of your financial statement, but if you find yourself in a house with no bed, no couch, and no table, that won’t be a nice place to live. If you find yourself in a house with no stove, no sinks, no toilets, and no interior walls, you don’t have a house at all. Eventually, you will have to replace those items. If you replace a used toilet with a new one, you’re in the red. If you try to avoid that by renting a new toilet, your cash flow might not take quite so hard a hit, but you’re even further in the red, no matter how long you cling to the extra “cash on hand.”

  2. Sheila; these may be silly questions coming from an uneducated Indiana resident but, if according to Pence the state has billions in reserves – why is a public referendum necessary? Wouldn’t this justice center benefit the state? And; if Erika Smith’s column is stating facts and Indiana residents are poorer than other states in this country, why are we the ones Ballard is expecting a public referendum to back his super expensive plot? We have already paid enough taxes into Pence’s billions in surplus to pay for public needs which certainly includes improving the Justice System. I would also be interested in knowing if any local (by that I mean Indiana) private developers are on the list to design, construct and finance this center then lease it to the city?

  3. One of the mantras that oligarchs have taught the little foxes to recite until it is accepted on face value is that any government institution is grossly inefficient and bureaucratic and any privatly held institution is smoothly efficient and waste free. This when the only difference between them is whether some of us or all of us own the means of production.

    When one considers the wealth that has been redistributed from creators and consumers to collectors of it that have resulted from the unwavering belief in this little flake of nonsense it is truly mind boggling.

    As soon as it is wedged into the machinery of rational independent thinking, self interest is shut down, seemingly permanently.

    Of course it is only one example of our slavery as a culture to the tyranny of big media. We rely on it to teach us what to like and what to wear and what buy and who to favor with our admiration. Of course behind each of those implanted cultural trends is an oligarch redistributing wealth his way.

    It truly has become the wealthy leading the blinded.

    I find the whole mess disconcertingly depressing. That the evolutionary advantage gifted to our species is so fragile and easily distracted that it cannot defend itself from shiny objects.

    When I think of the future and what needs to be done to counter the existential threats we are visiting on ourselves given this glaring flaw in our makeup I feel no optimism that we’re capable of it.

    To have emerged from the Rift Valley and filled the entire planet with throbbing civilization only to be defeated by our own kind who believe that they now own our only home is the ultimate irony. Science may have allowed us huge insights into the universe but other than that we are little advanced from the jungles that we decimated in our rush to leave them behind.

  4. Private business is in business to make money. Sooner or later, in some way, it is always going to cost the public more when government leases and sells off public property and government jobs. Elected politicians may make high wages but the vast majority of government workers are paid less than those doing the same jobs in the private sector.

  5. I’ve often been your critic, Sheila, but this is an excellent article. I too was (am?) a big supporter of a Justice Center. But the ideal location was the old Market Square Arena. And they way they’re doing it certainly doesn’t benefit taxpayers. There is no reason to involve a private vendor other than to hand out taxpayer money to private interests. As you point out, it will cost more to have a private vendor as owner and landlord.

    I do disagree with the suggestion that this is something the state should do. The state’s taxpayers shouldn’t be financing local government buildings.

    Your article just scratched the surface though on the problems. Do you know the prosecutors and public defenders’ office space in the new facility has been eliminated? (So too has space for the juvenile court.) So all that rent we were going to save on downtown office space for the PD and prosecutor is out the window. They’ll all have to commute to the new building.

    Speaking of the problems of the commute, much of criminal representation involves pre-trial and status conferences that might last five minutes. Small downtown law firms which do civil and criminal cases can offer to do the latter at cheaper rates because going to these hearings don’t consume a lot of time and they can do other things on their civil cases while in the building. If people have to travel 10-15 minutes (counting parking time) for 5 minute criminal hearings, they’ll be knocked out of working for maybe an hour or so. As a result, those attorneys won’t be able to take those criminal cases or they’ll have to charge more.

    Your article also fails to mention that the losing bidders got paid by taxpayers to bid. Another great Ballard idea.

    I would encourage you to stay on this issue. Great article.

  6. Well, the state legislature seems to think they own Indianapolis when it suits them. But then why would they interfere with the GOP mayors scheme?

  7. I should clarify that Sheila didn’t suggest state funding. I was referring to a person’s comment to the article.

  8. This is a issue that has hung over our city for 25 years, in 88 I was on the CCC Public safety committee I proposed buying the Farm Bureau building at 130 E Washington St. It was designed and built by the same companies that built the CC building and looks much like it. It’s floors had been designed for heavy loads psf to support insurance co records, they had just upgraded the entire HVAC and Electrical systems, it was easily secured, a tunnel could have been built between 130 E Wash St and the new planned jail facility connecting the CC bld. Farm Bureau received some great deals along with Mansur Devl. to relocate to Virginia Ave in my old district. They offered the building to the city for 6 million dollars in ready to move in condition. At the time we were building a new jail facility a 911 emergency communications system and a new Juvenal facility on Keystone ave . Dr Servaas and I pushed the idea Hudnut was not against it but the CCC top shelf flattley refused to even consider it. For under 10 million the project could have been constructed for the courts, and all of their needs for the next 50 years. Another opportunity for a better city lost over foolish egos and township politics.

  9. Thanks Ray. That is a sad story of how this city can pass up great values.
    Lawyers: PLEASE TIE THIS THING IN KNOTS until a new mayor is in office.
    STOP IT NOW. Only the lawyers can stop or delay this until after the election.

  10. Paul; I am the person who referenced state funding assistance – did Indianapolis/Marion County residents not contribute to the state surplus Pence is so proud of? I was mistaken in believing major civil and criminal court actions would also be using the new Criminal Justice System. So I deserve to be flogged due to my lack of knowledge/full understanding but I stand by the fact that my tax dollars from the east side of Indianapolis are part of the surplus. You might find it interesting to read Erika Smith’s column in the Star this morning regarding that state surplus and the rising poverty level of Indiana residents, including the working poor who added to the surplus.

  11. JoAnn, I don’t believe Pence will let go of any surplus at all for any reason. Paul, you are correct – as a citizen of northern Indiana I would not be happy if surplus money was used to benefit a local Indianapolis project. The rest of the state would demand money for their projects too. Finally, this project makes me wonder if Ballard is doing this for his own future financial benefit (maybe a job with a huge salary at one of the firms he is giving this project to?). Our prior governor certainly secured his own future career by appointing his cronies to the Purdue Trustee Board before he left office.

  12. There is a simple guide to evaluate this: Privatization is just a buzz word for Piratization. It steals from the taxpayer to enrich some corporation (and likely their partner politician). If Thoreau were alive today he would warn, “Beware any venture that requires privatization.”

  13. Pete, you are correct in so many ways. When we consider how many millenia Indians resided on the North & South American continent without leaving evidence of environmental destruction; How the African Continent HAD survived hundreds of thousands, perhaps millions of years without human damage; How the Americas were destroyed in less than five hundred years; You have to ask yourself where true intelligence lies.

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