CHICAGO — Indianapolis hopes to start reaping the benefits this year of a $1 billion downtown development that features an expanded Indiana Convention Center connected to a new football stadium and the world’s largest Marriott hotel complex.

Officials held a ribbon-cutting ceremony last week to mark the opening of the $275 million facility expansion. The project boosts the convention center’s space to 16th largest in the U.S., up from 32nd.

Coupled with the $750 million Lucas Oil Stadium, hotel campus, and a new $1.5 billion airport, Indianapolis has issued nearly $3 billion of bonds to finance tourism-related development over the last six years. A slew of new taxes tied to local tourism support the convention center and football stadium.

The development will help transform the city from “Naptown” to “a new Indianapolis” that will be a national draw for conventions and tourism dollars, according to Chris Gahl, spokesman for the Indianapolis Convention and Visitors Association, the city’s marketing arm.

“We’ve arrived on the national convention destination stage,” Gahl said. “We are now competing with San Diego, Chicago, Orlando, and Philadelphia.”

The Lucas Oil Stadium, where the Indianapolis Colts play, will host the 2012 Super Bowl.

A 2004 study that made the original case for expanding the Indiana Convention Center projected the expansion and new stadium would generate $2.25 billion in economic development the first 10 years after opening. 

The city and Indiana also boosted taxes to support the struggling authority that runs the convention center and sports ­venues. 

The Marion County Capital Improvement Board owns, operates, or leases Conseco, the Indiana Convention Center, Victory Field, the Lucas Oil Stadium, and related parking structures. All the facilities are located in downtown Indianapolis.

Like many sports and convention center authorities, the Marion County CIB struggled through the recession with mountings costs and dwindling revenue. In 2009, the city and state stepped in and crafted a new revenue package aimed at boosting the authority’s bottom line.

“The collaborative effort of the state and the city to really help solidify this organization has shown what can be accomplished over the last year and a half,” said Dan Huge, the board’s chief financial officer. Huge joined the board in 2010 after a long stint as the director of the Indiana Bond Bank.

“We have managed to fix our problems and are not in danger of defaulting on any of our bonds, and we have a plan for the future,” he said.

The convention center is located a few blocks from Indianapolis’ next large-scale development project.

The city hopes to sell $98 million of bonds to finance its role in the North of South project, which will serve as a new corporate campus for Eli Lilly & Co. The $155 million development will feature a boutique hotel, a new YMCA, apartments, and retail space.

Financing for the expansion and Lucas Oil Stadium comes from five new tourism-related taxes.

State and city legislators in 2005 approved a series of new taxes to finance the $1 billion downtown development. The revenue package included a Marion County food and beverage tax hike of 1% as well as a 1% increase in the food and beverage tax of six surrounding counties; a 1% increase in the admissions tax; a 2% car rental increase; and a 3% hike in the hotel and motel tax.

So far, the tax revenue has exceeded projections, but only slightly, according to local reports.

Since 2005, revenue from the new taxes has totaled $222 million, 2.2% ahead of projections.

To the extent that local revenues are insufficient to meet debt service, payments are made from the state’s appropriation.

In the case of the Marion County CIB, unexpectedly high costs of running Lucas Oil Stadium, falling revenue, and one-time expenses tied to some of its outstanding bonds led to an operating deficit that threatened to cripple the improvement board in 2008. 

“We were staring at a $47 million deficit,” Huge said.

In 2009, the city and state approved a revenue package that expanded the downtown ports district to include the new Marriott and raised the bed tax another 1%. The increase pushed Indianapolis’ hotel-motel tax rate to 17%, among the highest in the country.

The additional funding is projected to generate $11 million annually and was considered key to stabilizing the state’s convention industry. “That’s helped us get some of our traction back,” Huge said.

The General Assembly also agreed to let the CIB borrow $9 million from the state in 2009, 2010, and 2011, and pay it back over 10 years. The authority took the loans in 2009 and 2010 and will consider taking it again this year depending on its cash reserves, Huge said.

The new money has also allowed the board to negotiate a three-year, $33.5 million agreement with the Indiana Pacers, who had been threatening to leave town unless the city anted up money to operate Conseco Fieldhouse.

Under the current pact — which will be negotiated after the National Basketball Association renegotiates its labor agreements with players — Indianapolis will pay the team $10 million through 2012 and invest at least $3.5 million in capital projects at the fieldhouse.

The Pacers would be required to pay back the money if they leave the city after 2013 and would not have any obligation if they stay through 2019.

The deal was important to the city, as the Pacers are projected to generate $55 million in annual revenue and more than 900 jobs.

Last Thursday’s ribbon-cutting ceremony opening the new convention center marked the end of six years of planning that spanned two mayoral administrations. Officials have already booked $1.3 billion in new contracts through 2021, according to Gahl, the Convention and Visitor Association spokesman.

“To start out, before the doors even open, with $1.3 billion in economic development is, we feel, extraordinarily strong,” Gahl said. “We feel confident that meeting planners will continue to show interest in this new Indianapolis city.”

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