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Public-Private Partnership Policy Casebook/Indianapolis Courthouse

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Overview

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Introduction

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- Purpose
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The City of Indianapolis, Marion County, and justice officials sought a Public-Private Partner-ship (PPP) to resolve the current deplorable conditions of Marion County justice facilities. The goal of the PPP was to find solutions that improve efficiency and safety while accessing the justice system for the citizens of Marion County. The project required no additional taxes making it a budget neutral project. The selected solution proposed a project that would relocate and integrate 11 currently separate facilities into a single Justice Center. The PPP requires performance based infrastructure (PBI) payments for the Justice Center. Marion County would agree to pay the PPP an annual fee for a long term lease. [1] In return the winning PPP bidder will design, build, finance, operate, and maintain (DBFOM) the Justice Center. After the lease expiration the Marion County will receive a fully functional, modern Justice Center that can be operated and maintained by government or leased again to a new PPP.

- Background
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The Indianapolis criminal justice agencies and the buildings that house them are spread across 11 separate facilities in downtown Indianapolis. For approximately three decades, the Marion County government and justice officials called [2] for a solution to a disparate patchwork of facilities. The distance between facilitates forces agencies to spend extra time and money transporting officials and prisoners in a growing and congested downtown area. Multiple facilities create duplicative contracts and operational costs, lost time, and wasted potential revenue. Marion County analysis and studies over the past 30 years [3] conclude that if the three institutions: jails, courts and attorneys’ offices and sheriff’s offices consolidate on one site, Marion County could potentially save millions of tax dollars a year from efficient service, improved safety, reduced transportation cost and lower infrastructure maintenance costs.

The current facilities used by the justice system are approximately 50 years old. Recently passed state laws such as (HEA 1006) [4] require the county to house felons at county facilities, this will result in an estimated annual additional of 250-500 detainees. [5] The state of disrepair at the current facilities is also causing a threat of federal government intervention.

To explore the possibility of consolidating the facilities, in August of 2013, Indianapolis Mayor Greg Ballard commissioned David Rosenberg as the Indianapolis director of Enterprise Development. The office of Enterprise and Development analyzed the different options: Design Built (DB) and Public-Private Partnership (PPP). By December of 2013, the City of Indianapolis released a request for qualifications (RFQ) to design, develop, finance, construct, operate, and maintain the new Marion County Justice Center as a performance based infrastructure (PBI). After exploring 10 potential construction locations [6] , the new center was to be built on an abandoned General Motors (GM) facility. The site is located on a large campus that has space for future expansions. The new facility will include a 3,000 bed detention facility, on-site medical facility, a criminal court with 28 court-rooms and 10 hearing rooms, 960 bed minimum security facility, space for the county sheriff’s office, parking for the public and employees, and prosecutor and public defender offices.

List of Actors

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- Public Figures
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  • Director of Enterprise Development, city of Indianapolis - David Rosenberg
  • Marion County Circuit and Superior Courts
  • Mayor Greg Ballard and Mayor’s Office
  • Marion County Sheriff’s Office
  • Marion County Sheriff John Layton
  • City-County Council
  • Council's Chief Financial Officer - Bart Brown
- Private Figures
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  • Corrections Corporation of America (CCA)
  • H.J. Umbaugh and Associates
  • CBRE, Inc.
  • WMB Heartland Justice Partners


Timeline

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Year Actual Timeline of Events Proposed Timeline of events
2013 August 2013 - Ballard tasks Rosenberg to study moving justice center
2013 December 2013 - Mayor Greg Ballard, Judge David Certo and Sheriff John Layton announced plans for a new consolidated justice complex to replace the existing facilities.
2013 December 20, 2013 the City issued a Request for Proposals and Qualifications (“RFPQ”) December 20, 2013 - Issue RFQ/P
2014 February 11, 2014 - Five RFPQ responses were received February 11, 2014 - RFQ/P Responses Due
2014 March 2014 - City chooses 3 responders to participate in bidding. March Shortlisting of Proposers
2014 August 2014 - Mayor says project will cost $500 million to build but City won’t pay more than the $122.6 million/year it already pays to operate current justice center.
2014 August 2014 - reported that Rosenberg declined to report the maximum annual fee the city agreed to pay, $50 million/year, a fee shared with 3 pre-qualified bidders
2014 August 2014 - reported that Mayor’s office refused to release RFP documents, which typically is public.
2014 November 21, 2014 - the three finalists submitted their committed proposals for the justice center November 21, 2014 - Proposals Due
2014 December 12, 2014 - preferred developer WMB selected as preferred offeror December 12, 2014 - Selection of winning bidding team
2014 December 19, 2014 - City and WMB agree to terms of 35-year agreement. December 2013/January 2014 - Final Negations with winning bidding team
2015 February 2015 - Mayor’s office releases details of justice center budget to City-County Council
2015 February 9, 2015 - Media report of approval delays in City-County Council. Democrat-led council wants project reviewed by committee, but delayed creating committee. February 2015 - Expected City Council vote to approve project
2015 March 2, 2015 - Council voted unanimously to create five-member Marion County Justice Complex Board to weigh the contract, a procedural step required before the council can consider it.
2015 March 24, 2015 - Five-member Marion County Justice Complex Board holds first meeting. March 2015 - Commercial and Financial closing
2015 April 1, 2015 - City-County Council Report released argues justice center can be built for less with traditional financing.
2015 April 8, 2015 - Marion County Justice Complex Board approve the project for a full City-County Council vote.
2015 April 20, 2015 - City-County Council vote down the project 6-2 citing potential for tens of millions of dollars in budget shortfall.
2015 May 5, 2015 - Election Primary
2015 May 2015 - WMB modifies plans to reduce scope of project to eliminate perceived budget shortfall issue. They reduced by a total of $17,500,000 resulting in a fixed price of $390,500,000.
2015 June 8, 2015 - City-County Council votes not to hear a revised version of the plan June 2015 - Construction begins
2015 July 1, 2015 - General Motors Stamping Plant site goes back up for sale. June 2018 - Construction complete and facility operational


Maps

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  • Proposed Justice Center site located at old General Motors stamping plant.


  • Locations:
  1. Eskenazi Health Center
  2. Marion County Juvenile Court
  3. Marion County Traffic Court
  4. Marion County Public Defender
  5. Marion County Prosecutor
  6. Marion County Superior Court - Criminal Division
  7. Marion County Jail 1
  8. Arrestee Processing Center
  9. Marion County Jail 2
  10. Environmental / Community Court
  11. Marion County Coroner

Narrative

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Prior to signing the Memorandum of Understanding (MOU) in 2013, the City conducted a preliminary investigation into the feasibility of the potential design, financing, construction and operation of a new consolidated criminal justice facility to replace and relocate the current facilities (the "Justice Facility Improvement Project") to one campus for the purpose of maximizing government efficiency and improving essential services to the citizens of Marion Count. [7]

The City initially released a request for qualifications (RFQ) for the Marion County Justice Center in December of 2013. Five teams responded to the RFQ, and the City evaluated their responses based on the teams’ experience, resources, and ability to design, build, finance, operate, and maintain a large facility like the proposed Justice Center. Over the summer of 2014 and into December, committees made up of government, justice system, and other stakeholders reviewed and evaluated the proposals. The evaluation was divided into two categories; financial and technical.

The financial evaluation focused on the cost to the city-county in the form of annual service fee payments made over the course of the agreement and the financial feasibility of the proposal. The technical evaluation focused on how well the proposals fit the needs of the county agencies that will be located at the Justice Center.

The City then selected the three strongest teams to respond to a request for proposal (RFP) to design, build, finance, operate, and maintain the new facility. In November and December 2014, a review committee and subcommittees made up of the various stakeholders evaluated the responses and selected a final bidding team. The WMB Heartland Justice Partners proposal had the lowest financial price and met the rigorous technical requirements outlined by the City. [8]

On December 12, 2014 Mayor Greg Ballard, Marion Superior Court Presiding Judge David Certo and Sheriff John Layton spoke at a press conference to outline the project and announce that it will be built at an unoccupied General Motors Stamping plant southwest of downtown. The City described a public-private partnership (PPP) structure in which the selected bidder will design, build, finance, operate, and maintain (DBFOM) the facility with an annual service payment (performance base availability payment) from the government of no more than $50 million. Currently, Marion County and the City of Indianapolis annually spend $123 million on the dispersed facilities: jail operations, office space, correctional facilities, and inmate hospital care. With a bid that came in $3 million under the City’s $50 million affordability cap, WMB Heartland Justice Center partners’ $408 million project ($47 million/year over 35 years) total was chosen as the preferred provider. The payments are subject to performance deductions, the service fee could be less, but not more, than what is specified in the project agreement. [9] Companies affiliated with this group had previously delivered the new courthouse in Long Beach, California and the Ohio River Bridge in Indiana. For Indianapolis, the consortium WMB agreed to a DBFOM contract to the criminal justice facility for 35 years at $1.6 billion. WMB’s first-year payment would be $46.8 million, or less if the city could have closed the deal in time to take advantage of the currently historical low interest rates.

In the press [10] public officials criticized the Mayor’s office for not being transparent about how the $50 million annual cap was decided and for not releasing RFP documents, which are typically public. A 2011 justice center study by the Greater Indianapolis Progress Committee (GIPC) estimated a new unified complex would actually cost $520 million [11] and critics were skeptical about WMB’s low $408 million figure. Additionally, the Value for Money (VfM) analysis was not made publicly available until late in the planning process. [12] The Mayor’s office did use a private sector comparator for the facility alone, but it did not account for operations, maintenance, and risk transfer cost.

By February 2015, local media reported that the Democrat-led City-County Council was delayed in approving the deal. By this time, the Mayor’s office had released documents and details of the justice center budget and the RFP submissions, but the City-County Council had other plans. They announced intentions to form a committee to review the financials of the justice center project, but had delayed in appointing committee members, according to media reports. [13] On March 2, 2015, the City-County Council appointed five committee members to review the contract. In early April 2015, using their own analysis, the committee determined that according to their studies the P3 agreement will be more expensive than building the project using traditional financing. At this time, an election primary campaign was only a month away. Joe Hogsett, a Democratic mayoral candidate, called for a vote delay until after the election and also, Democratic Marion County Prosecutor Terry Curry publicly opposed the project. [14]

On April 20, 2015 the project failed to pass the City-County Council vote. Following the elections in May, WMB worked to reduce the cost of their plan. The lowered costs by reducing size and scope of the facilities provided, reducing the estimated budget by $17.5 million. [15] In a last-ditch effort, a Republican member of the City-County Council called for a procedural move to vote on WMB’s revised plan on June 8, 2015, but the Democrat-led Council declined to support the measure effectively postponing any deal for a new justice center complex until the next Mayoral administration.

Financial Structure

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The facility will be fully financed by the successful PPP bidding team. WMB Heartland Justice Partners assessed the present value of the project at $717.7 million, this includes construction, operation and maintenance. The facility construction was initially estimated at $408 million with an initial $45.4 million yearly payment starting at completion date. [16] The funds to pay for the annual service fee payments will come from the existing budgets of the county agencies located at the Marion County Justice Center and the expected savings attained from modern design and economies of scale. Currently the County spent $123 million annually. Total project cost is estimated at over $1.75 billion. [17]

The Sponsor incorporate a special purpose entity (the Project Company - WMB) to enter into the project agreement and acquire finances. WMB Finance Working Group is responsibilities for delivering funding certainty, reduce execution risk, and flexibility and an expeditious Financial Close. To finance the project WMB consider several funding sources:

  • Taxable Bond - institutional investors
  • Bank Financing - lenders would be international project finance banks, Canadian, U.S. and European
  • Hybrid Structures - a combination of short term and long term finance
  • Equity - equity contribution $75-$100 million


Equity Members/Share Capital Distribution

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WMB Organization Chart
Equity[18]
70% Meridiam Infrastructure Indy Justice, LLC
15% Walsh Investors, L.L.C.
15% Balfour Beatty Investments, Inc.





Funding[19]
Funds Sources Ammount % of Financing
Private Placement $524.96 90%
Equity $58.33 10%
Total $583.29 100%








Policy Issues

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Accountability and Transparency

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In the press [20] public officials criticized the Mayor’s office for not being transparent about how the $50 million annual cap was decided and for not releasing RFP documents, which are typically public. The Mayor’s office did not release any documents about the deal until 2 months after the city had signed contracts with WMB. Additionally, the Value for Money (VfM) was also withheld from the public until after the deal was made. [21]

Failure of previous P3 projects in Indianapolis

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In 2011, under May Ballard’s administration, the city signed an $18 million, 25-year lease with Lifeline Data Centers to build a new Regional Operations Center.[22] The building was rushed to open in time for the 2012 Super Bowl in Indianapolis and was used as an emergency response center for the event. Less than two years after opening, the fire department forced its closure and evacuation of tenants after 120 safety violations were cited.[23] Eventually tenants were able to move back in, but the bad publicity over the safety violations and the perception that the city misused taxpayer dollars endured. Around the same time, the city and the Ballard administration planned to enter into another P3 deal for the city’s parking meters. [24] The cost-benefit analysis of this proposal relied on doubling the parking meter rates, expanding meters to more streets, and generous future traffic models.[25]

Election Politics

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The timing of the City-County Council vote on the justice complex came at the same time as a politically contentious election primary in the Spring of 2015. In the Mayoral race, Republican Greg Ballard was not running for another term. Mayoral Democratic candidate and former U.S. Attorney Joseph Hogsett and Republican candidate and local businessman Charles Brewer dominated their respective primaries. On the City-County Council, 16 out of 20 incumbents are running for election in new districts because of re-districting. Democrats hold a slim 15-14 majority on the council. The recent redistricting and a new state law that eliminated 4 at-large council seats, 3 of which were Democrat-held, will make it difficult for the Democrats to hold their majority [26] Because the project was spearheaded and developed by a Republican Mayor’s administration, it became an easy target for Democrats fighting for position in the spring primary.

Economic Development and Social Justice

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Contributing the concerns of the Justice Center Complex were questions over the future downtown economic development and the public’s ability to easily access the court system. Generally, there was consensus that the justice system services needed to be consolidated. The city was paying a lot of money for prime downtown real estate, much of which are outdated and inefficient structures. Vacating those properties could mean big savings for the government budget and an opportunity for developers to re-vitalize parts of downtown. At a public presentation to promote the Justice Center complex, representatives from Downtown Indy, a non-profit downtown development organization outlined 10 large office, residential, and retail developments under way in downtown Indianapolis totaling $355 million in ongoing investment [27]. However, if the complex moved to the proposed GM Stamping Plant, accessing justice center services via public transit is more challenging than a centralized downtown location. Two planned bus routes would eventually serve the new Justice Center, but the new site lacked the large, integrated, and multimodal network available in downtown Indianapolis.

Future Needs of Justice System

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In August 2014, as the city was preparing to accept RFPs for the complex, events surrounding the death of Michael Brown happened in Ferguson, Missouri, just 4 hours away from Indianapolis. As the Ferguson case and others around the country developed, leaders in government and justice communities, as well as the public, took a critical look at how municipalities are convicting and jailing individuals. Many questions remain about the future of policing and the justice system. The nationwide conversation led many close to the Indianapolis Justice Center project questioning if increasing prisoner capacity is a real solution to dealing with minor criminals.


Discussion Questions

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  • Was the consolidation of the justice system appropriate?
  • What criteria would weigh the most in your selection of the site?
  • When does potential revenue from economic development outweigh easy public access?
  • What’s most critical to the success of a P3; strong leadership, clear communication, or a good deal?
  • Could the success of this project restore the reputation of P3’s in Indiana?


Additional Readings

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References

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  1. ↑ Indianapolis Business Journal http://www.ibj.com/articles/52678
  2. ↑ Preliminary Study of Need http://www.indy.gov/eGov/ccjc/Documents/GIPC%20Study.pdf
  3. ↑ Preliminary Study of Need http://www.indy.gov/eGov/ccjc/Documents/GIPC%20Study.pdf
  4. ↑ article? http://www.indy.gov/eGov/ccjc/Documents/Council%20Presentation.pdf
  5. ↑ Marion County Q&A https://ronepraiseindy.files.wordpress.com/2014/12/justice-complex-faq.pdf
  6. ↑ Indiana Business Journal http://media.ibj.com/Lawyer/websites/opinions/index.php?pdf=2014/january/Complex.pdf
  7. ↑ Justice Center MOUhttp://www.indy.gov/eGov/Mayor/Documents/2014/Justice%20Center%20MOU.pdf
  8. ↑ Marion County https://ronepraiseindy.files.wordpress.com/2014/12/justice-complex-faq.pdf
  9. ↑ Justice Complex FAQ http://www.indy.gov/eGov/ccjc/Documents/Justice Complex FAQ.pdf
  10. ↑ Indiana Business Journal http://www.ibj.com/articles/48957-500m-indy-justice-center-relies-on-novel-funding
  11. ↑ Indy Star http://www.indystar.com/story/news/politics/2015/03/12/weighing-scales-justice-center-bargain-boondoggle/70239308/
  12. ↑ MCJC(http://www.indy.gov/eGov/ccjc/Documents/MCJC%20Business%20Case.pdf
  13. ↑ Indiana Business Journal http://www.ibj.com/articles/52652-special-review-panel-advances-justice-center-plan
  14. ↑ The Indiana Lawyer http://www.theindianalawyer.com/marion-county-justice-center-debate-proves-divisive/PARAMS/article/36935
  15. ↑ WFYI http://www.wfyi.org/news/articles/developer-scales-down-justice-center-proposal-in-attempt-to-win-over-councilors
  16. ↑ Indy Justice Complex http://www.indy.gov/eGov/ccjc/Documents/Justice Complex FAQ.pdf
  17. ↑ Indy Star http://www.indystar.com/story/news/politics/2015/03/12/weighing-scales-justice-center-bargain-boondoggle/70239308/
  18. ↑ Justice Center Complex Financial Plan http://www.indy.gov/eGov/ccjc/Documents/Justice%20Complex%20Financial%20Plan.pdf
  19. ↑ Justice Center Complex Financial Plan http://www.indy.gov/eGov/ccjc/Documents/Justice%20Complex%20Financial%20Plan.pdf
  20. ↑ Indianapolis Business Journal http://www.ibj.com/articles/48957-500m-indy-justice-center-relies-on-novel-funding
  21. ↑ MCJC http://www.indy.gov/eGov/ccjc/Documents/MCJC%20Business%20Case.pdf
  22. ↑ Indy Star http://www.indystar.com/story/news/politics/2015/03/12/weighing-scales-justice-center-bargain-boondoggle/70239308/
  23. ↑ Indy Star http://www.indystar.com/story/news/crime/2013/09/09/indianapolis-regional-operations-center-ordered-closed-indefinitely-for-repairs/2789331/
  24. ↑ Bond Buyer http://www.bondbuyer.com/issues/119_470/indianapolis_parking_lease-1019994-1.html
  25. ↑ High Beam http://business.highbeam.com/5280/article-1G1-241952228/new-parking-meter-plan-could-yield-city-more-cash-but
  26. ↑ Indy Star http://www.indystar.com/story/news/politics/2015/02/06/indy-council-grabs-mayoral-field-set/22996353/
  27. ↑ http://www.indy.gov/eGov/ccjc/Documents/4215_April%202%20Presentation%20-%20consolidated%20v8.pdf
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