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BY PATRICK GUINANE
pguinane@nwitimes.com
317.637.9078 | Monday, September 29, 2008 | (4 comment(s))
INDIANAPOLIS | A bitter three-year legal battle over millions in economic development subsidies that flow from East Chicago's riverboat casino has wound its way to the state's highest court.
The Indiana Supreme Court has scheduled Oct. 23 oral arguments in the case, which centers on the 1994 side deal then-Mayor Robert Pastrick cut to bring riverboat gaming to the lakefront city.
The mayor backed Show Casino's application to the Indiana Gaming Commission, and the casino agreed to dedicate 3.75 percent of its annual revenue to economic development. The city and two nonprofits collectively known as the Foundations of East Chicago each received 1 percent cuts while a 0.75 percent subsidy went to East Chicago Second Century, a for-profit firm created to build affordable housing.
Pastrick associates gained control of both foundations and Second Century, an arrangement that went unchallenged until current Mayor George Pabey defeated Pastrick in 2004.
The new mayor accused the economic development groups of squandering millions on overhead and in early 2005 filed a lawsuit seeking to redirect to the city the subsidies, now worth about $8 million annually. The city, which did not return a call seeking comment Friday, has argued, among other things, that the Pastrick agreements never received a proper public vetting and should be void.
The foundations and Second Century, which is run by Pastrick allies Thomas Cappas and Michael Pannos, have dismissed the legal fight as the continuation of a "blood feud" between political adversaries. Pabey served three years as Pastrick's police chief before toppling the eight-term mayor.
The development firms argue the contract that created their subsidies cannot be terminated, and they've won every legal round so far. A Marion County judge sided with the foundations and Second Century in 2006, and the Indiana Court of Appeals affirmed that decision last year.
"The Court of Appeals accurately decided this case, and we're just looking forward to bringing this matter to final resolution," said J. Lee McNeely, an attorney for Second Century.
The Indiana Gaming Commission, citing a state investigation showing Cappas, Pannos and their families had taken "enormous" salaries from Second Century, terminated the firm's subsidy in 2006. More than $5.2 million sits in escrow pending a resolution of the legal battle.
Meanwhile, state legislators last year approved a law to give the city control of the subsidies following Ameristar Casinos' purchase of the East Chicago riverboat, a move that has steered into escrow more than $3.4 million that would have gone to the nonprofit foundations. The Indiana Court of Appeals heard a legal challenge to that law last week.
Indiana Attorney General Steve Carter has intervened in the underlying case, demanding Second Century, a private company, disclose how it spent the $16 million in casino cashed it reaped over a decade. Carter, who has been rebuffed by the lower courts, will make his case to the Supreme Court in separate arguments scheduled for Oct. 23.
"I argued and lost at the trial court that this kind of agreement should be void as a matter of public policy," Carter said. "So we've lost that argument, but we've said, 'OK, if you're going to have this kind of agreement, the public has a right to know whether it has reached the fruition that the policy makers sold it on.'"
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Finally.... wrote on Sep 29, 2008 7:46 PM:
Elmer Fudd wrote on Sep 29, 2008 11:18 AM:
The Pabeys... wrote on Sep 29, 2008 10:30 AM:
Where was all their "outrage" then?
Correct. There was none. We know why. They were on the receiving end of the generosity of Mayor Pastrick and Attorney Cappas.
Remember that George Pabey became an "investor" in the riverboat with NO MONEY "invested" in the project!!
Mr. Carter, would you like to conduct an investigation into that?? "
Concerned wrote on Sep 29, 2008 8:33 AM: