The merger of four of central Indiana's biggest business development organizations might achieve only modest cost savings,
or even be more expensive than the status quo, a confidential financial analysis obtained by IBJ shows.
In addition, the analysis by CPA firm Katz Sapper & Miller LLP shows one-time costs of a restructuring that consolidates the Central Indiana Corporate Partnership, the Greater Indianapolis Chamber of Commerce, Indianapolis Downtown Inc. and the Indy Partnership could reach $2 million.
The four groups collectively have annual expenses of $16.7 million. Based on several merger scenarios KSM evaluated, consolidation could yield up to $475,000 in annual savings, or lead to a small increase in costs, according to the study.
IBJ reported in October that the organizations were quietly evaluating whether to merge some or all of their operations to boost effectiveness and eliminate duplication. The talks began in April. Each of the four has three delegates on a 12-member research committee, which is expected to make a recommendation within weeks.
Veteran banker J. Albert Smith, who is spearheading the merger discussions, said he thinks consolidation savings would skew toward the high end of the spectrum.
Regardless, it was potential strategic benefits, not a desire for cost cutting, that spawned the talks in the first place, said Smith, chairman of the Greater Indianapolis Chamber of Commerce.
"I've been in the banking industry for 30 years. Every time [you engineer a merger], there's cost savings. It's a question of how much. We're working hard right now to better quantify that," said Smith, who also is president of Chase Bank's central Indiana division.
"Maybe we don't save any money, we all spend the same amount, but we all spend it more effectively. That's a good return on investment."
Each of the four groups approaches economic development from a slightly different angle. The Central Indiana Corporate Partnership represents CEOs of the area's largest corporations, while the Greater Indianapolis Chamber of Commerce is a networking forum and advocate for 3,500 local businesses, big and small. Indianapolis Downtown Inc. attempts to shepherd downtown development, and Indy Partnership markets central Indiana and brokers business incentives.
Adding to the complexity, people familiar with the discussions say, are political implications of a merger. One scenario under discussion--merging Indy Partnership into CICP--could weaken the influence of Democratic Mayor Bart Peterson. The city provides about one-fifth of Indy Partnership's funding. CICP CEO Mark Miles is a prominent Republican and former aide to Dan Quayle.
Miles and Peterson declined to directly address questions about political aspects of the merger.
"I just want to make sure however things end up being organized, things work effectively," Peterson said.
Republicans and Democrats alike want to be able to take credit for economicdevelopment successes and to be present with silver shovels in hand when a company breaks ground for a big expansion, said Brian Vargus, an IUPUI political science professor.
"You want to be careful what resources you allow the other side," Vargus said. "Neither wants to give the other side another arrow to add to its quiver they can shoot come the next election."
Such obstacles might have been easier to overcome had the financial analysis projected eye-popping merger savings, people familiar with the discussions said.
Indiana University professor Bruce Jaffee, who reviewed the KSM analysis for IBJ, said it appeared sound. He said it suggests a merger would need to be driven by perceived strategic advantages, not money.
"I don't want to minimize [a potential] half a million by a long shot," said Jaffee, professor of business economics in the Kelley School of Business. "But it wasn't an enormous number, which effectively shows there isn't a huge amount of duplication of effort."
Further, Jaffee said, it's not a given that combining four organizations into one would create an economic-development entity with greater firepower.
"Sometimes, there are benefits of having competition between two 400-pound gorillas [rather] than one 800-pound gorilla," he said.
The KSM analysis, presented to the 12-person research committee in October, doesn't explore every merger scenario. For example, none includes merging Indianapolis Downtown Inc. with another group. IDI has the lowest annual expenses of the four, $3.16 million.
Miles said the KSM analysis was used during an early stage of consolidation discussions. He said talks have evolved and now include scenarios that weren't examined then.
"We have options available to us which would make economic sense, which are being considered, and which would achieve savings and efficiency, even with any offset for one-time costs," Miles said.
"Also, to an extent, I always viewed that [KSM analysis] as the most conservative case."
Most of the scenarios KSM studied included combining Indy Partnership and Central Indiana Corporate Partnership.
A major unresolved issue is whether the local economic development organization for Marion County--currently part of Indy Partnership--should come along, be absorbed by the Greater Indianapolis Chamber of Commerce, or stand alone.
Sources close to the talks say a merger of Central Indiana Corporate Partnership and Indy Partnership remains the most likely outcome of the discussions.
Central Indiana Corporate Partnership already is the parent of the life sciences initiative BioCrossroads and a similar initiative under development targeting the state's advanced manufacturing sector. In addition, discussions are in the final stages to merge the high-tech trade association Techpoint into CICP.
If Indy Partnership moves under CICP's wing, it likely would keep its brand identity and existing operations, sources say. CICP, meanwhile, would focus on fund-raising and strategy.
Smith said the talks were originally expected to conclude by year's end, but might slip into January.
"I think we're narrowing in on it. We've crossed the 50-yard line for sure. We're more or less getting to the 10," he said. "I'm comfortable we're going to [end up] with something that's a better economic development effort and align ourselves to be very, very competitive."
As the months pass, economic-development officials in surrounding counties are growing impatient. The uncertainty spawned by the four-way talks has hindered fund-raising, traditionally a priority at year-end, said Hamilton County Alliance President Jeff Burt. Hamilton County Alliance is one of Indy Partnership's 10 regional partners.
"It is time to make a decision and move on, whatever shape it takes," Burt said. "At the end of the day, we need to take care of the region."