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Legal fight over Pan Am Plaza outpaces redevelopment

October 2, 2010

Did taxpayers get a raw deal three years ago when the city of Indianapolis changed a decades-old agreement in an attempt to encourage redevelopment of Pan Am Plaza?

That’s the question behind a legal challenge to a 2007 resolution that reduced the size of the now-crumbling public plaza built for the 1987 Pan American Games and waived a hefty fee otherwise required to redevelop the plot before a 30-year covenant expired.

The court case, brought in July 2008 by locally based Roberts & Bishop on behalf of two taxpayers seeking class-action status, to date has seen more action than the proposed redevelopment project, which stalled along with most every other similar deal as the real estate market soured.

Whether the case gets a full hearing now rests with a three-judge panel of the Indiana Court of Appeals, which heard oral arguments Sept. 29. At issue is whether the plaintiffs are even legally entitled to challenge the move by the city’s Metropolitan Development Commission. A ruling is expected before year’s end, at which point the loser likely will appeal to the Indiana Supreme Court.

Roberts & Bishop attorney Paul Ogden argued the city violated state law by giving up its interest in the plaza without a City-County Council hearing and a full airing of the deal’s merits. He’s seeking “declaratory, injunctive and monetary” relief on behalf of plaintiffs Clark Kahlo and Howard Elder.

An attorney for the city, Maggie L. Smith of Frost Brown Todd LLC, argued changes to project agreements in areas designated for redevelopment do not require a public hearing and are exempted from state laws governing municipal land disposals. The city contends the plaintiffs lack the legal standing to even bring the lawsuit.

The saga began in 1985, when the city gave the Indiana Sports Corp. the properties known as Square 88, in exchange for a 30-year agreement restricting development on the plaza. The agreement said the requirement to maintain a “first class urban plaza” could be waived after 20 years if the owner paid a $3 million, inflation-adjusted fee to the city.

By 2007, Pan Am Plaza had become an eyesore, and the Indiana Sports Corp. claimed it could not afford to fix it. The not-for-profit couldn’t sell it, either, thanks to the agreement with the city. What private developer wants to pay for an eyesore that can’t be redeveloped?

So in the final weeks of the administration of Mayor Bart Peterson, the Metropolitan Development Commission quietly approved a resolution reducing the public plaza to 10,000 square feet. The measure cited minimal use of the plaza and decaying infrastructure.

It did not mention the current size of the plaza, 88,000 square feet, or the fact the original agreement entitled taxpayers to a $3 million payment—adjusted for inflation to a maximum of $6 million—if the plaza did not remain a public amenity for at least 30 years.

Arguing in front of the Indiana Court of Appeals panel, Smith said the city allowed the covenant protecting most of the plaza to expire early in exchange for a smaller plaza area that will be protected in perpetuity.

A member of the panel asked Smith whether the body acting as redevelopment commission also could overturn “perpetuity” without hearing from remonstrators.

She answered yes.

Ogden, the plaintiffs’ attorney, described the resolution watering down the plaza covenant as last-minute shenanigans of Peterson’s outgoing administration.

Smith pointed to the support for the move both by the previous Democratic mayor and the current Republican mayor as a reason to uphold the decision.

“Two separate administrations believe the deal is in the city’s best interest and is not improper,” she said.

The city’s decision to not enforce the covenant or fee paved the way for the Sports Corp. to sell the plaza and ice skating rinks to a partnership led by locally based Kite Realty Group, which planned restaurants, retail and entertainment uses that have not yet materialized.

Enforcing the payment could have stalled a great redevelopment opportunity, Maury Plambeck, director of the city’s Department of Metropolitan Development, said at the time.

Plambeck said there was “no magic” to the 30-year term of the covenant.

Though enforcing the fee theoretically could have produced a windfall to taxpayers of up to $6 million, waiving it had another benefit—allowing the site to return to tax rolls for the first time in more than 20 years. The sale of the plaza likely means taxpayers won’t have to foot the bill for expensive repairs to the plaza, although there are no guarantees given the state of the real estate market.•

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