One alternative plan for the Capital Improvement Board problem has consistently been promoted amongst local bloggers: CIB bankruptcy. Under the proposal, first suggested here and here, the Indiana General Assembly would need to authorize the CIB, a municipal government corporation, to file bankruptcy, under which the CIB could renegotiate its unfavorable contracts.
Proponents say CIB bankruptcy has two main positives: 1) that it does not raise taxes, and 2) it allows Indianapolis to renegotiate the one-sided Lucas Oil Stadium lease with the Colts. Both are very attractive things, but a CIB bankruptcy filing presents a host of questions.
1. Municipal Bankruptcy Rules. Government entities file Bankruptcy under Chapter 9. Unlike the private rehabilitation offered by Chapter 13, Chapter 9 bankruptcy is limited by the 10th Amendment to the U.S. Constitution, which reserves powers not delegated to the Federal Government for the states. The main advantage of a Chapter 9 filing is to rewrite labor contracts, which is not at issue in the CIB. It remains to be seen whether Chapter 9 could adjust the CIB situation in a favorable manner.
2. Long-Term Debt Costs. Bankruptcies tend to have a poor effect on personal credit ratings. You can only imagine the havoc that a CIB bankruptcy may have on its, as well as the city’s and county’s, other bond and debt obligations. Taxpayers will have to bear those cots.
3. Convention Contracts. Unfortunately, the Colts deal is not the only CIB contract that would be up for change under a CIB Bankruptcy filing. Every contract the Convention Center–also managed by the CIB– has as well would be up for revision, giving conventions and events like the NFL Combine a chance to get out of their agreements and flee to other cities.
Using an NFL analogy, would the Colts tear up a labor deal to rid themselves of one bad player contract, but risk letting Peyton Manning, Reggie Wayne, and Bob Sanders, as well as all their other players, all becoming free agents? The risk is far worse than the reward.
Bankruptcy may be the only way to force the Colts reopen the Lucas Oil Stadium lease, but it puts every other event and convention in Indianapolis at risk. Such loss of business would have a tragic effect on jobs, downtown businesses, and the government revenue generated by those events, making our tax situation even worse. The more questions that are asked, the more CIB Bankruptcy seems like a really bad idea.