UPDATE: Lawmakers drop MLS requirement for Indy Eleven stadium

State lawmakers on Monday significantly amended legislation designed to provide long-term funding mechanisms to the Capital Improvement Board, keep the Indiana Pacers in the city for at least another 25 years and support building a permanent soccer stadium for the Indy Eleven.

The new version of the bill, which the House Ways and Means Committee voted unanimously to send to the full chamber, would provide additional funding to the CIB on a sliding scale rather than by the same amount annually, and no longer requires the Indy Eleven to join Major League Soccer within three years in order to capture tax revenue for its proposed $150 million stadium.

The amendment also prohibits the CIB from using tax dollars to finance, construct or subsidize meeting or ballroom space related to a privately owned hotel. That has been a big sticking point for hotel operators in downtown Indianapolis who oppose a proposal to build 1,400 Hilton-branded hotel rooms on Pan Am Plaza.

The legislation had been tied to the Pan Am Plaza development, which includes a $120 million expansion of the Indiana Convention Center, because it would have allowed the CIB to capture additional tax revenue generated by the project.

The publicly-financed expansion of the convention center is expected to be funded with tax increment financing revenue, and the bill does not affect the city’s ability to pursue that strategy.

Under the new version of the bill, the CIB would receive certain tax revenue generated by eight existing downtown hotels to fund certain sports and hospitality projects, likely including renovations at Bankers Life Fieldhouse.

The CIB would be allowed to capture up to $9 million in additional revenue in fiscal year 2022, up to $12 million in fiscal year 2023, up to $16 million in fiscal years 2024-2033 and up to $18 million in fiscal years 2034-2041.

The version that passed out of the Indiana Senate would have given the CIB up to $15 million annually in tax funds.

But all of the funding has a catch—the CIB must sign a deal with the Pacers to keep the team in Indianapolis for at least another 25 years. The Pacers’ lease at the fieldhouse expires at the end of 2024. The bill initially said the deal needed to be reached by April 1, but because no deal has been signed yet, lawmakers changed the date to April 20 as part of the amendments on Monday.

The bill also would now allow the Indianapolis City-County Council to extend the auto-rental, admissions and innkeeper’s taxes through 2040.

The auto-rental tax, which generated $7.2 million for the CIB in 2017, and the admissions tax, which generated $15.1 million in 2017, would otherwise both expire by the end of 2027. The previous language of the bill would have allowed the city to extend those taxes through 2038.

The innkeeper’s tax, which generated $55.3 million for the CIB in 2017, is also set to expire by the end of 2027. An extension for that tax was not included in the Senate version of the bill.

As for the soccer stadium, the bill would allow up to $9.5 million annually in certain tax revenues to be captured for up to 32 years. That’s an increase from the $8 million annually for 25 years that was outlined in the Senate-approved version of the legislation.

The Senate version also required the Indy Eleven to join the MLS and sign deal with the CIB that would stipulate the team would stay in Indianapolis for at least 25 years before any tax dollars could be used to construct a stadium.

The Eleven currently plays in the second-tier United Soccer League.

As proposed by Indy Eleven owner Ersal Ozdemir, the $150 million, 20,000-seat soccer stadium would be part of a $550 million, mixed-use project called Eleven Park. The residential and commercial parts of the project would be privately funded, but Ozdemir proposed that the stadium be funded with tax revenue generated by the larger Eleven Park.

The legislation still requires a long-term deal between the CIB and the Indy Eleven before any tax revenue can be used, and it would require the team to kick in 20 percent of the stadium construction costs.

House Ways and Means Committee co-chairman and bill sponsor Todd Huston said lawmakers removed the MLS requirement because of concerns that the team wouldn’t be able to accomplish a move up in leagues without having a stadium at least under construction.

“Hopefully the long-term outcome is MLS,” Huston said.

Eleven Park officials sent out a statement after the committee vote in support of the bill moving forward.

“Today’s vote is just the latest step in the legislative process and is a result of all sides working together to achieve a positive result,” the statement said. “We will continue to work directly with legislators and all stakeholders as Senate Bill 7 continues to move through the Statehouse.”

The new revenue for the CIB would come from extending the life of multiple tourism- and entertainment-related taxes, expanding the footprint of what’s known as a Professional Sports Development Area and increasing the amount of revenue the CIB could collect from the PSDA.

The existing PSDA is a zone mostly downtown that captures state income and sales tax revenue generated at Lucas Oil Stadium, Bankers Life Fieldhouse, Victory Field, the Indianapolis Colts’ northwest-side practice venue and four downtown hotels.

Tax revenue from the sports venues within the PSDA is currently capped at $16 million, and tax revenue generated from the four hotels in the PSDA is capped at $8 million.

Initially, the bill would have expanded the PSDA to include the two Hilton-branded hotels that have been proposed in conjunction with the planned convention center expansion at Pan Am Plaza, as well as the 316-room Hyatt Place/Hyatt House that just opened on Pennsylvania Street across from Bankers Life Fieldhouse, starting July 1.

But the amendment approved by lawmakers on Monday tweaked what the expanded PSDA would cover—removing the two Pan Am Plaza hotels but including a total of eight existing hotels. The hotels include the Hyatt Place/Hyatt House, the Conrad Indianapolis, the Crowne Plaza, Embassy Suites, Omni Severin, Hilton Indianapolis, Sheraton Indianapolis City Centre and the Alexander Hotel.

Huston said lawmakers removed the Pan Am Plaza hotels because including them injects uncertainty into how much revenue would actually be generated and available.

“We knew from those eight hotels how much revenue they’d provide, so it provided certainty,” Huston said.

The legislation would not increase taxes on the hotels—it only changes where existing taxes that are being paid are allocated.

Huston said the amended bill is designed to make sure the CIB can meet its debt obligations for the next 25 years and give the CIB certainty in its revenue streams as it pursues other projects like upgrades to Lucas Oil Stadium, Victory Field and the existing footprint of the convention center.

But it’s unclear exactly which projects are in the 25-year plan or what the CIB’s debt obligations are. The CIB has declined to date to make that information publicly available despite repeated requests.

Huston told IBJ that he has seen the CIB’s debt schedule projections and outlines of the projects that would be pursued.

“We’re not going to commit to the amount of funding we’re talking about without having those details,” Huston said.

IBJ has requested the CIB’s revenue, expenses and debt obligation projections for the next 25 years to see what the quasi-government agency’s finances look like for that time span, but the CIB hasn’t provided the information.

The debt obligation schedule is particularly significant, because those are payments the CIB is already committed to for decades to come. According to data compiled by the Indiana Department of Local Government Finance, the CIB has seven outstanding bond obligations that would be paid off starting in 2021 and lasting until 2027.

“We certainly don’t want to provide unnecessary funding in early years and leave shortfalls in late years,” Huston told IBJ.

The lack of public transparency surrounding the CIB’s 25-year plan seems to be related to the pending deal with the Pacers. The concern is that making the CIB’s financial projections and 25-year plan public could compromise its negotiating position with the Pacers.

“Until there is the contract with the Pacers, you’re probably not going to get too much,” Senate Appropriations Chairman Ryan Mishler, the author of SB 7, told IBJ. “A lot of it is private until then.”

The city released a statement after the committee vote on Monday calling it a “productive step forward.”

“The Capital Improvement Board's facilities are an economic engine for our city and our state, and Mayor Joe Hogsett applauds the continued work of the Indiana General Assembly as we move closer to preserving the progress we've made over the last five decades without a single tax or fee increase on Hoosier taxpayers,” Hogsett’s spokeswoman, Taylor Schaffer, said in the statement.