Selling Out City Hall

Profits for Big Business,
Secrets from Taxpayers

Special to the Progressive Populist

Indianapolis, Indiana, is a city where the mayor is freed of democratic constraints and legal oversight to pursue a policy which benefits himself and his wealthy campaign contributors. It is a case study of why this country desperately needs comprehensive campaign finance reform for local politics, as well as all other levels of government.

The mayor of Indianapolis, Stephen Goldsmith, is only a symptom of the anti-democratic, corporatist values that are eating away at our society. Corporatism, the persistent rival of representative government, sees democracy as inefficient, ineffective, corrupting, and subject to whims and emotions.

Privatization, the latest manifestation of Corporatism, has failed in Indianapolis by its own standards of efficiency, cost-effectiveness, accountability and incorruptibility, has turned ordinary citizens into civic ciphers, and has enhanced the power of the wealthy clients and patrons of the mayor.

Indianapolis has been touted as a model of the free-market approach to city government and Goldsmith is hailed for his dedication to privatizing the city's assets and services. He is an adviser to Texas Governor George W. Bush and reportedly wants to be in Bush's cabinet. Goldsmith's approach differs from that of other "innovative free-market mayors" in an important way: He doesn't want to run the city like a business, he wants business to run the city and reap the gains while many of the risks and costs are borne by the public.

To appreciate, even to enjoy the story, it helps to know something about Goldsmith himself. Newt Gingrich calls him the most creative and innovative leader in the country and Newt's GOPAC includes a Goldsmith effort among its Inspirational Speeches.

The New York Times is one of Goldsmith's more reliable outlets for flattering profiles and lengthy op-ed pieces. The Wall Street Journal puts him in a class of leading political figures, and he has been lavishly praised in USA Today, Time, and other publications. He's the author of a book, The Twenty-first Century City, which is copyrighted by The Manhattan Institute, a right-wing think tank funded by the John M. Olin Foundation. A high point in his life was addressing the Republican National Convention in 1996 ("I never in my wildest dreams thought I'd get an invitation to speak on Thursday night," he said.)

Although he lives in a luxurious home, the mayor supplements his $83,000 city salary by moonlighting. He earns $13,000 a year teaching college students a class called,"Reinventing Government" and $10,000 a year as chair of the Manhattan Institute's Center for Civic Innovation. To avoid any contact with ordinary people, i.e. non-campaign contributors, the mayor's home address is top secret. On voter registration records he went so far as to have himself listed as "L.S. Goldsmythe". Commenting on his blank Economic Disclosure Statement for 1996, the mayor quipped, "I don't have any money." His residence has 24-hour police protection and he is always accompanied by at least one bodyguard and sometimes four or five officers are assigned to mayoral security. His wife and children also have protection. Yet during his reign as mayor, police protection has been cut for citizens and homicides are at record levels.

Goldsmith's reputation as a keen businessman and a tough negotiator is sometimes exaggerated. In 1995 he sold a $7.59 million building owned by the city for $50 and sweetened the deal with another $2.5 million to fix up the building. His 12 years as prosecutor had earned him a reputation of stern law enforcer, but as mayor he has developed a curious legal amnesia.

Without notifying the owner, he donned a hard hat and personally bulldozed what he thought was a crack house. It was a great tough-on-drugs photo-op but the angry owner sued him in Federal Court for criminal mischief, criminal trespass, and theft.

His non-stop solicitations for campaign contributions began in 1991, when he first ran for mayor and raised over $1 million. Right away he started The Gold Team of over 450 donors (at a minimum of $1,000 each) who could "meet with him and offer advice..." Charges that he trades city contracts for campaign contributions have dogged his administration from the beginning. In his book, Goldsmith describes the "sport" of finding ways around municipal requirements and his distaste for "bureaucratic rule-following".

The dark side of Goldsmith's experiment in free-market government has gone completely unreported in the national media. Editorially, the conservative local dailies, The Indianapolis Star and the Indianapolis News have supported Goldsmith's privatization efforts, but even they cringe at some of Goldsmith's more outrageous actions.

Privatization in Indianapolis is a study in illusion. It's a complex tangle of closed-door, publicly inaccessible dealings, public resources sold or given to wealthy campaign contributors, public funds drained for private gain. Goldsmith's penchant for personal secrecy is matched by the public secrecy which precedes each announcement of his latest privatization deal.

How could all this happen in only a few years, and where are the authorities responsible for protecting the public interest? Lets go back to January 1992, when Goldsmith took office. To decide what services were ripe for privatization he initiated the so-called Yellow Pages test. In his book, The 21st Century City, Goldsmith says, "If the phone book lists three companies that provide a certain service, the city probably should not be in that business ... The best candidates for marketization are those for which a bustling competitive market already exists. Using the Yellow Pages test, we could take advantage of markets that had been operating for years".

Apparently, however, Goldsmith misplaced the phone book when he chose his first big privatization move -- contracting out the management of the city's 12 golf courses. Valued at $80 million, these courses had earned the city $3 million annually. They were turned over to the same golf pros who had been working for the city prior to privatization. Free market values were unleashed, and the pros received juicy contracts and more than 200 pieces of free city golf equipment. The pros were ordered to proceed expeditiously with repairs and remodeling and send the bills to the city. To cut through tiresome red tape and produce fast, showy results for the mayor, the golf pros disregarded the statutory requirements for competitive bidding and city and state building inspections and permits and the work was completed in record time. When the pros billed the city for more than $605,000 in 1993, however,the first of many scandals broke.

No charges were ever brought by former prosecutor Jeffrey Modisett, but the mayor's war chest benefited by $29,000 in contributions from eight of the grateful golf pros. In his book, Goldsmith claimed that the pros were not "guilty of anything more serious than the sin of enthusiasm." It is reported that some of the enthusiastic pros are now raking in more than a quarter million dollars a year, but it is impossible to confirm this since secrecy guards the records. City revenues from the golf courses are down over 70%.

The next big scandal shows how truly innovative the mayor is in creating the illusion of savings. The Sherman R. Smoot Company joined with Oscar Robertson to form Oscar Robertson/Smoot (ORS), a construction management firm that had been formed expressly to oversee the city's half-billion-dollar infrastructure rebuilding program. ORS, chosen over experienced firms in the city, didn't even exist until just before its new officers signed a no-bid contract with the mayor ... and what a contract it was! One would have thought the contractor himself wrote it, which he did!

A businessperson's dream come true, the contract allowed a 2.75 multiplier for all wages, salaries, and raises that ORS paid to employees. The city also provided the office space (an entire floor of the City-County Building), utilities, equipment, supplies, phones, vehicles, and gasoline! This translated into a built-in 50% annual profit over the three-year contract!

Additionally, what used to be operating expenses could now be charged to the capital budget (the city's credit card). The mayor's plan was to phase out $55,000-a-year city engineers and replace them with compliant, cooperative, pro-privatization ORS people. ORS engineers were also paid $55,000, but the city was billed $152,000 plus expenses (remember the 2.75 multiplier)! To show their gratitude, officers of ORS formed a political action committee cynically named "Business Leaders for Better Government." This PAC and individuals with ORS gave over $30,000 to Goldsmith campaigns. The public remained in the dark until the mayor made a big mistake. He demoted a dedicated, highly qualified city engineer who was critical of the way ORS was being allowed to operate unchecked, with no management oversight. George Tomanovich then blew the whistle to the media about the shoddy work, ghost employment, bid-rigging, waste, and fraud that he said he had witnessed while working with ORS contractors.

After he was replaced by one of the contract engineers hired by ORS, Tomanovich filed a lawsuit in federal court to get his job back, charging that the mayor was punishing him for being critical of privatization. Goldsmith dismissed the whole affair as a "purely political" attempt to embarrass him in an election year. Facing the prospect of giving sworn testimony about his cozy reciprocal relationship with ORS, however, the mayor settled with Tomanovich for $300,000 in taxpayers' money and an apology.

In 1996 alone, to replace this one $55,000-a-year city engineer with a private contractor, the taxpayers were charged nearly half a million dollars for salaries, multipliers, expenses, and settlements, not to mention overhead and interest on the bonds the city had floated to pay ORS.

One might expect that the mayor would be so proud of the privatized work done by his hand-picked construction managers that he'd have stacks of glowing performance audits to cinch his case for privatization. In fact, very few performance audits have been done and there has never been an outside audit. One of the most revealing internal audits examined work at two parks representing about one-half of one percent of the $530 million in projects managed by ORS. City auditors found documents altered or missing and learned that ORS had paid for shoddy, incomplete work with the approval of yet another ORS employee. A second contractor was then paid to redo and finish the job and even then, according to city auditors, "... there are some items that appear not to have been completely rectified," according to the city's Internal Audit Agency, Final Report. In his seven years as "Municipal CEO," Goldsmith has not allowed outside, independent performance audits of any construction, remodeling, repair work, or services that he has contracted out.

Yet another expense to taxpayers resulting from private management of the public's business are cost over-runs. A study done by NUVO Newsweekly, comparing cost over-runs on state projects using in-house managers and city projects with Goldsmith's private managers, found that city over-runs (as a percentage of bid prices) were three times as high as state work, with one bungled privatized city project an astonishing 300% more than the original bid.

Goldsmith may be a cold, calculating businessman with ordinary citizens, but he exhibits infinite patience and compassion for big contributors like the inept ORS. After their juicy contract ran out, ORS was dissolved, but the Sherman R. Smoot Co. (the S in ORS) was awarded another no-bid contract by the mayor to co-manage construction of the new city basketball arena. This $200 million sports palace is being built with public money for two more big Goldsmith contributors, mall meisters Herb and Mel Simon, the multimillionaire owners of the Indiana Pacers. Not content to merely build this fieldhouse for his wealthy patrons, Goldsmith also gave the Simons naming rights for this arena which they recently sold for $95 million to Goldsmith's biggest contributor, Steve Hilbert, owner of Conseco, Inc. So before it's half-built, the arena must be referred to as the Conseco Fieldhouse, even though neither Conseco or the Simons have put a cent into the building itself.

Contracting out the city's advanced waste water treatment facilities (AWT) is the centerpiece of Goldsmith's program. These two plants, built with federal money, had won numerous awards using high-tech ozone and cryogenic oxygen to produce far better water quality than required by law. But clean water was never the issue with Mayor Goldsmith, cheap water was his goal and a consortium calling itself the White River Environmental Partnership (WREP) promised to save the city $65 million over a five-year contract.

This cost-saving was something that the city could have achieved easily without privatizing simply by doing what WREP did, laying off 40% of the work force and switching to a cheaper chlorine process that was strenuously opposed by environmental groups as more dangerous and ecologically destructive. Of course keeping the AWTs under public management would not have generated any campaign contributions or publicity. Since Goldsmith needed no approval from the city council, the privatization became official in March 1994. Grateful officers of WREP have contributed generously to the "Elect Steve Goldsmith Fund" and reportedly toast his name at every opportunity.

The mayor insists that, aside from massive fish kills from time to time, this privatization is a success. So far the savings haven't translated to lower taxes or sewer bills, but with the French government subsidizing one of the principals in the consortium, Lyonnaise des Eaux-Dumez of Paris, taxpayers remain hopeful.

Privatizing the management of the Indianapolis International Airport was next. A ten-year contract was awarded to yet another government-subsidized foreign company, British Airport Authority (BAA), and the city estimates a minimum savings of $32 million. Unfortunately for bewildered taxpayers, every cent will be turned over to the grateful airlines in the form of lower landing fees, to further enhance their already record profits by an amazing 100%. In his book the mayor writes that this shrewd marketization effort will "be a magnet for increased economic activity" and "should (italics mine) have a ripple effect that benefits ... the city."

Goldsmith's success at privatizing public dollars is matched only by his success in privatizing public land. After secret negotiations, he rewarded a college friend, Gerald Kosene, a real estate developer who is also one of his big campaign contributors with an outright gift of public greenways fronting White River. In spite of a storm of protest from 23 neighborhood and conservation groups, the mayor felt that the sight of new upscale river-front condos would be more dramatic than greenways or parkways.

Not caring for the bad press he'd received over his greenways giveaway, Goldsmith's next big real estate deal was to trade public park land to yet another developer and campaign contributor, Charles Davis. The new Davis Homes could be marketed as "next to beautiful Eagle Creek Park," but if further plans to privatize more of this park prevail, the folks in this new housing addition could find themselves further and further from any trees.

All of this conniving and plotting has entailed a battery of attorneys and consultants from the city's best law and consulting firms. Total city expenditures for contractual consultants rose from $5.1 million in 1991 to $20.1 million in 1995. Even the mayor's own staff can't resist hopping on the privatization gravy train ... Dollyne Pettingill, Goldsmith's long-time press secretary, resigned her $50,000 a year city job so she could sign a $95-an-hour city contract with no cap on hours doing similar work.

Any worries about investigations of all these deals were neatly put to rest, however, when the new Marion County Prosecutor was elected. Scott Newman had previously worked for Goldsmith and received determined backing from the mayor in his own campaign. An appreciative, fawning prosecutor, Newman has not charged city officials with any offenses and refuses to appoint a special prosecutor despite requests from the former prosecutor and several city councilors. In Indiana the only official who may initiate an investigation of the mayor is the county prosecutor. Promoting his very own prosecutor was the smartest move Goldsmith has made as mayor.

Another clever move for the mayor was to push a bill through the State Legislature in 1995 that allows secret negotiations in privatization deals. To horrified advocates of open government it was explained that secret negotiations are absolutely necessary to "encourage the free flow of ideas," work out the best deals and save taxpayers money. After all, that's how big business works so smoothly and efficiently.

After his federal lawsuit was settled, George Tomanovich told federal agents of what he regarded as possible criminal activity involving city projects funded with federal money:

* $150,000 in allegedly missing federal money intended to reimburse the city after a 1992 ice storm;

* alleged mismanagement of federal money for Youth Conservation Corps park work;

* $5 million in allegedly missing bond money for a park renovation project;

* allegedly illegal campaign contributions.

Tomanovich reported that the FBI timidly told him that with the "political climate" in Indianapolis they did not want to appear as "political headhunters".

What of all the savings for the public? Goldsmith states that he has saved Indianapolis $230 million. Property taxes have not fallen, nor has the city budget, nor have water and sewer bills, and airline ticket prices have gone through the ceiling. All claims of savings go up in smoke when we examine the Comprehensive Annual Financial Report of the City of Indianapolis. These yearly reports show that city expenditures rose from $1.9 billion in the previous administration to more than $3.1 billion at the end of Goldsmith's first term. The long-term bonded debt rose from $542 million on 12/31/91 to $901 million four years later.

Indianapolis has some extremely serious problems. More than 33,000 homes are still on septic systems, the second-worst record in this respect of any large city in the nation, and heavy air pollution contributes to one of America's highest lung-cancer rates. One textbook on city politics notes that in most cities, "Complete systems of separate sanitary and storm sewers were not completed until late in the nineteenth century. (Italics provided) Of our 19th-century sewer system urban expert Neil Peirce wrote, "Indianapolis has the dubious distinction of being America's largest metropolitan area without separate pipe systems for sewage and storm water. When big rains overwhelm the regular sewer system, raw sewage -- a stew of marauding microbes -- get pumped into White River".

In Indianapolis we have unmanaged urban sprawl; "... one of the lowest recycling rates in America ... to feed the insatiable appetite of the garbage incinerator;" no rapid transit system; a privatized bus system so unreliable that it would cause riots in the Third World; weed killer in the drinking water; and E-coli counts in the waterways as high as 70 times EPA limits. Ten schools are being closed because of budget constraints; 43% of our children under six live in poverty; we had a record 130 homicides last year -- more than Norway and Finland combined.

Goldsmith has cut public safety employees and refuses to install street lights. "This city is not in the lighting business ... we think electricity bills should pay for the lights," he says. Indianapolis actually has 41 fewer policemen and 1,116 fewer streetlights than in 1987. Goldsmith's answer to crime in our darkened city is to seek federal funds to hire "private police to patrol neighborhoods," encourage police to "stop suspicious cars," "question suspicious pedestrians," and demand that judges hand out longer jail sentences. To further cut costs, the mayor wants public libraries to charge for services and stop "unfairly competing" with record shops and video stores! Lessening the danger that citizens might take to the air to criticize him, Goldsmith abolished the public access TV channel, growling, "This city is not in the television business".

The real winners in the mayor's innovative approach to government are the mayor himself and his major campaign contributors. In 1996 more than $11.5 million poured into Goldsmith's campaign coffers. Most of his backers are hard-headed businessmen who can fairly anticipate a big return on their investments and are rewarded with plum contracts, tax abatements, sweetheart deals, a publicly financed downtown mall, or a new pro basketball arena.

Early this year the mayor announced a multimillion dollar grant to the Indianapolis Colts, the worst team in the National Football League. It's hoped that a $20 million renovation plus $8.9 million annual tribute, all courtesy of the city taxpayers, will keep the team from breaking its lease and skipping town, as its owner did to Baltimore in 1984.

During the last legislative session, Goldsmith used public funds to hire a law firm to successfully lobby against a bill which would have "required professional sports teams to give at least six months' notice before leaving and Indiana residents first crack at buying the franchise at the owners price."

Corporatist "counter-establishment" ideologues Richard Gilder and Howard Berkowitz of New York City, former board members of the Manhattan Institute mentioned earlier, each contributed an astounding $100,000 to Goldsmith's campaign in 1996 for governor of Indiana.

The editor of NUVO, an award-winning weekly newspaper in town, wrote, "Mayor Goldsmith runs Indianapolis as though it was a city in Mexico or Ukraine or China or someplace where people have no power, where there is no democracy." What we see in Indianapolis is a cynical plundering of the public treasury by a ruthless right-wing ideologue. In the name of free-market values, anything which serves the needs and well being of ordinary people is grist for the privatization mill. If anyone suffers, you blame it on the vagaries of the marketplace. Yet when a fat cat contributor, silk hat in hand, whines to the mayor that his profits need enhancing, (e.g. a 24-year-old public basketball arena needs to be replaced with a spanking new one complete with luxury suites), the free market cannot be relied upon, so massive public assistance is expected and given.

We should remember that democracy has never been cost effective or efficient and that the free market is only interested in people with money -- not people with problems. We must not allow democracy to be "contracted out" to the wealthiest bidder for the greater glory of men like Steve Goldsmith. Democracy cannot be privatized -- but politicians like Goldsmith should be!

Postscript: It appears a lot of folks have realized this. In spite of spending more money than any candidate in Indiana history ($11.5 million), Goldsmith was soundly defeated for governor in 1996, even losing the heavily Republican county where Indianapolis is located. In the fall of 1998, career politician Stephen Goldsmith announced he would not run for a third term as mayor, in order to pursue a career in teaching. His term ends in December 1999, although he apparently hopes the campaign of Texas Governor George W. Bush will allow him to continue privatizing on a larger scale.

In December 1998, doubts about the independence of Price Waterhouse Coopers, the accounting firm that receives $200,000 annually to do the "outside, independent audit" of the city's books, were raised after it was discovered the firm and its predecessor, Coopers & Lybrand, had contributed over $30,000 to Goldsmith since 1991, the year he was first elected mayor. Subsequently, a citizen's group, Alliance for Democracy of Indiana, petitioned the Indiana State Board of Accounts (SBA) to begin an outside, independent audit of the Goldsmith privatization experiment. The SBA used to audit Indianapolis just like every other Indiana city but about 14 years ago a "gentlemen's agreement" went into effect allowing the city to hire "outside independent" auditors in lieu of the state oversight.

Two months later, in spite of efforts by the Goldsmith administration to block it, SBA examiners arrived at City Hall to begin their investigation. According to the Public Accounting Law , their findings must be turned over to the State Attorney General before being made public.

Jack Miller is a retired dentist, coordinator of the Alliance for Democracy of Indiana and board member of the Hoosier Environmental Council. His opinions are his own. He is working on a book analyzing privatization in Indianapolis. Email