City could be short $37M on justice center financing, analysis says

Mayor Greg Ballard's promise of financing a new justice center through operational savings is overblown, according to an analysis by the Indianapolis City-County Council.

The council's chief financial officer, Bart Brown, released an analysis late Tuesday afternoon. In it, Brown says some of the administration's assumed savings and revenue sources aren't guaranteed, can't be documented, or lack a direct tie to the transition to a new facility.

The city could face shortfalls in 2018 through 2026 ranging from less than $1 million to $10 million for a cumulative $37.7 million, according to the report.

“This is no time to risk stretching City/County budget obligations too far,” the report notes.

Assisted by Umbaugh Associates and other consultants, Brown also analyzed the Ballard administration's preferred deal structure, which is a 35-year agreement with a private-sector vendor that would finance, design, build, operate and maintain the new facilities.

Brown concluded the proposed public-private agreement isn't the best “value for money,” and that a city-financed courthouse and jail would cost $516 million less than the $1.6 billion deal pending before the council.

Ballard's deputies said they anticipated that Brown's analysis would call into question the use of a public-private agreement. Before the analysis was released Tuesday, Chief of Staff Jason Dudich and Adam Collins, deputy mayor for economic development, told IBJ that municipal tax-exempt financing was considered 18 months ago and ruled out for several reasons.

A design-build contract, which Brown recommends, would save money on the front end through issuance of tax-exempt bonds, Collins said, but the public-private agreement guarantees a low cost of ownership over 35 years.

If the development partner takes responsibility for operations and maintenance, Collins said, the developer will have an incentive to build a high-quality building, and there won't be deferred-maintenance issues in the future.

Dudich said the council, through its staff, had an opportunity nearly two years ago to debate whether to proceed with a P3. “If you don't like the financing mechanism, vote it down, but don't slow it down,” he said.

Brown's analysis comes as the Marion County Justice Complex Board begins vetting Ballard's proposed deal with WMB Heartland Justice Partners. WMB is a global group that includes Meridiam, Balfour Beatty and Walsh Investors as equity members. WMB was the low bidder in a selection process that concluded in December.

The Ballard administration hopes to see the full council vote by April 20 in order to take advantage of WMB's low bid.

“We are confident that this report reflects the neutrality and independence we sought," Council President Maggie Lewis said in a prepared statement. "The Council looks forward to discussing the results with the administration over the next several weeks.”

Even if the council passes on the deal with WMB and pursues a different model, the city would still have to find money in the existing jail and criminal justice budgets.

The mayor's office has admitted that finding the savings and new sources of revenue is a work in progress. Earlier this month, Deputy Chief of Staff David Rosenberg said the city and its consultants had come up with a plan, based on input from the sheriff's office and other criminal justice agencies, that would create a cash cushion during the transition to the new complex.

The main source of savings would be the head count of the Marion County Sheriff's Office, which could operate a new jail with about half as many guards, an efficiency attributed to modern jail designs.

Brown found, however, that Sheriff John Layton's pledge to rely on attrition, rather than layoffs, means the savings would have to be spread over the first three years of a new facility's operation, deepening the potential shortfalls.

Other areas that Brown said were over-estimated include savings on jail rents ($800,000), arrestee emergency room charges ($3.5 million) and court rents ($700,000); increased revenue from holding federal prisoners ($2.5 million), increased state funding of Community Corrections ($200,000); proceeds from the sale of old facilities ($3.3 million) and backfilling space in the City-County Building ($1.4 million).