Saturday, August 16th, 2008
This week’s Indianapolis Business Journal runs a great article on the need for significant upgrades to the IU natatorium and track and field stadium, as well as the Indianapolis Tennis Center. The natatorium and track were built in 1982 for the Pan Am Games and were state of the art facilities at that time. However, they’ve basically been allowed to decay since then, with the result that they need significant upgrades to retain the major events they currently host. What’s more, without these world class facilities, the sanctioning bodies that were key to the amateur sports strategy’s long term, sustainable competitive advantage may leave. IUPUI owns the facilities, but they are not core to the university’s mission and they do not have revenue streams to pay for maintenance.
This failure to maintain the legacies of the past has been something that has plagued Indianapolis, as well as other cities. Millions of dollars are invested to create state of the art buildings and landscapes, but then they are not maintained over time and eventually fall into decay. The visual blight that results is a major negative whose impression on visitors and locals cannot be overstated.
Here, for example, are two pictures showing the current state of Pan Am Plaza
The city spent millions to redo the streetscapes around Circle Centre Mall when it opened, but look here what the railings around the flower beds on Washington St. look like today.
I could give many more examples. The newspaper boxes the city installed a few years back are mostly horribly rusted, for example.
This week the city held its grand opening for the brand new, very good Lucas Oil Stadium. But the city doesn’t even have the money budgeted to operate it yet, much less maintain it in a state of the art condition over the years.
One important lesson from this, something everybody in business knows, is that capital investments come with an operating tail and a depreciation tail. And that preventive maintenance today is the best way to avoid major repairs later. Unfortunately, all too often in the civic space the focus is on getting to the ribbon cutting, but beyond that the operations and maintenance are not priorities. In fact, government entities typically don’t even depreciate their capital stock on the operating budget side of their books. This is a major “shadow expense” that isn’t always well understood.
Fortunately, there are signs that local leaders understand this problem. The budget for the Indy Cultural Trail, for example, includes an endowment to pay for the trail’s maintenance. Without this, there is little doubt the trail would just be left to decay over time like everything else. The IMA’s Art and Nature Park also has an endowment component to sustain that park. Indeed, their entire institution operates off an endowment such that admission is free.
I think this is the model that ought to be followed. Before pulling the trigger to built a major public capital asset, leaders should make sure that revenue streams are available to pay the operations and maintenance. For things that involve public fundraising campaigns, the original fundraising goals should include an endowment amount to cover this. Now that perhaps isn’t going to cover the periodic “capital refresh” that you have to do when facilities reach end of life or major mid-point milestones (and perhaps the natatorium and such fall into this category). But for those some type of long range plan or map needs to be put in place. Again, just like the private sector – for example, condo associations who do reserve studies – does every day. Then you at least know when the major repairs are probably coming, and try to plan for them.