Insurance and Government

Ending overdue: Library shows progress amid legal tussle

April 24, 2006

There's finally visible progress on the city's Central Library expansion project. But the litigation over who's responsible for its construction problems still has no end in sight.

City-County Councilor Isaac Randolph is frustrated. So he wrote a proposal to order all the players in the Indianapolis-Marion County Public Library's legal dispute to enter binding arbitration.

"I'm trying to find a resolution to what's clearly become an embarrassment to the citizens funding this," Randolph said. "I've lost confidence in the leadership of the library system. When was the last time you heard of librarians wanting to unionize? Come on."

Randolph's proposal is under consideration by the council's Rules and Public Policy Committee. Since the Republican is not part of the council majority, it's unlikely his measure will pass.

Even if it did, getting every party in the lawsuit to agree on binding arbitration would be exceedingly difficult. And it's unclear whether the council has the authority to make such an order.

What is increasingly apparent is the growing consensus on the other side of the aisle. Councilor Ron Gibson, a Democrat and chairman of the Municipal Corporations Committee, expressed support for the library's management.

"I'm confident that they will achieve the new target date of spring 2008 in finishing the project," Gibson said. "At the same time, I don't want the legislative body to interfere with the civil litigation out there."

More important, Democrats now apparently accept the library's financial vision, yielding that its budget can't be balanced through cuts alone. Gibson won't yet use the words "tax increase," but there are few alternates.

"Under no circumstances will we close any of our community libraries. That's the core resource for learning in the public, so it's not an option," he said. "At some point, we as the legislative branch have to look at, how do we holistically fund our city? We will need to have more revenue. It's true for the library and it's true for IndyGo."

Library officials have projected a $1 million shortfall in their $36 million operating budget next year. In 2008, the library expects to be short another $6.3 million.

But library officials believe the construction overages on the $103 million central project have been controlled and can be covered by a $40 million bond issue. The central expansion's infrastructure is now advancing, with escalators and some glasswork recently installed.

Although the library's bonds are initially backed by property taxes, its leaders expect to ultimately repay them and their interest with proceeds from the lawsuits. To that end, the library is pursuing a court battle in hopes of maximizing settlements.

The project was once slated for completion this year. But in early 2004, library officials discovered widespread cracks in beams and pillars. The problem delayed construction and triggered a torrent of litigation and finger-pointing among contractors and engineers.

Since then, the library and its original contractors have been investigating the origin of the construction problems. The library contends contractors are responsible for the project's troubles and delays, and argues they should be responsible for the cost of all subsequent overruns, including legal fees.

But Locke Reynolds LLP Partner Julia Blackwell Gelinas, who represents Dayton, Ohio-based Shook Construction, the initial garage contractor, said the library is the one responsible for the prolonged discovery process-and its costs.

"We think it's ridiculous that there's still an investigation going on down there. It's been two years," she said. "It's a $7 million parking garage, and they've spent $19 million. And they tell us before they're done, it's going to be $40 [million] or $45 million."

Library board President Louis Mahern shot back, saying the primary purpose of the analysis isn't to shore up its claims. It's to ensure the structure is sound.

"The principal reason we went through all the testing we did was not for litigation purposes. The reason we went through all the testing we did is because that's a public building and there were very serious public safety issues involved," he said. "We have to make absolutely certain that building is safe for public use. That is the motivating factor."

The various parties in the dispute expect a trial to begin late next year or in early 2008. That means the legal battle could stretch on long after the Central Library's doors have reopened.

Even if the library ultimately prevails in court, its legal strategy could decrease its ultimate settlement, warned Nicholas Nizamoff, an attorney with Stuart & Branigin LLP. The same insurance policies underwrite both damages and legal fees, he said, so the longer the battle drags on, the less money there will be for a settlement. Nizamoff represents Indianapolis-based architect Woolen Molzan & Partners, one of the parties in the litigation.

"The more time that the parties spend litigating the case, the more costly it becomes, and the more these policies erode," he said.

Which is exactly why Randolph proposed arbitration. The same ordinance also requests the city study privatizing some or all of the library's functions. Randolph said there's more savings to be had if central Indiana mimics library systems in California and Ohio that have outsourced to corporations.

"If we can't even engage in a study, it tells me the will to protect the taxpayers is not there, either from the library or the council side," Randolph said. "And that is far more tragic than any cost overruns."

But Mahern said the library has already privatized a number of areas, such as security and maintenance. What's more, Mahern said, he's contacted all the library systems Randolph suggested for study. Most are smaller than IMCPL, he said, and cost no less to operate under private companies.

Mahern said one official from Riverside, Calif., expressed surprise at the inquiry.

"He said, 'You have one of the best managed libraries in the country. Why would you be interested in privatizing?'" Mahern said. "I can't believe councilman Randolph thinks about this more than I do. Maybe his frustration level equals mine, but I rather doubt it."

Bottom line, Randolph's proposal appears headed for the dustbin. And Democrats on the council now list the library's financial woes amid the ocean of red on the local government balance sheets.

"I'm consciously aware that we've got city and county employees who haven't received a pay raise in years. We've also got unfunded police and fire pensions. Sometime soon, the legislative body is going to have to look at how we fund all these agencies with something pretty creative, in a way that satisfies all our taxpayers," Gibson said. "If councilor Randolph can really show me a city where [privatization is] working, I'm willing to explore it.

"But I'm not so sure [he] has done his own due diligence."
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