Contributed By:The 411 News
Financial recovery plan will create a level playing field for incoming administration
Mayor Freeman-Wilson plans to leave Gary in a better financial shape than when she took office 8 years ago.
“We are trying to leave the next administration with a level playing field. That’s something Mayor Clay did not have and something I didn’t have,” Mayor Karen Freeman-Wilson said at the finance committee meeting of Gary’s City Council last Wednesday.
The level playing field, the mayor said, means eliminating the city’s deficit and a balanced budget with a surplus by 2021 that the incoming mayor and city council can use to implement their plans for the city.
Details on creating that level playing field took up most of the finance committee meeting, coming after a contentious June 4th city council meeting where the Public Safety Facility sale leaseback, a major portion of the mayor’s financial recovery plan was approved after much debate over the costs and the timing of the deal.
Essentially a debt consolidation plan, the city will borrow $40 million using the public safety facility as collateral to pay down city expenses. “The next administration will only be faced with making payments on the sale leaseback,” Freeman-Wilson said.
Curtis Whittaker of Whittaker & Co., the city’s financial analyst, explained the current state of the city. The deficit or not enough money to pay bills in 2018 jumped from $7.3 million to $42.5 million in 2019. The city has already borrowed $28 million this year. Without the sale leaseback, Whittaker said, the city will be broke at the end of 2019, leaving the incoming administration with nothing. Without that immediate infusion of cash, the yearly deficit is projected to grow between $3 and $5 million yearly, reaching $58 million by 2023.
It’s a better deal and with better terms now than in October 2018, Freeman-Wilson said, when the sale leaseback was first approved because the U.S. Steel agreement has been finalized. Representatives from the sales leaseback and the steel companies attended the committee meeting.
Brandon Comer of Comer Capital Group, which packaged the sale leaseback, told finance committee members that interest picked up from underwriters after U.S. Steel announced it would invest $750 million in Gary’s Tin Mill and other companies announced relocating to Gary. “The Public Safety Facility is not worth $40 million,” Comer said. “The deal was made on the belief by investors that the city could pay it back.”
The sale leaseback’s $40 million, minus $5 million set aside as costs of the transaction, and the one-time $15 million payment in lieu of taxes from the steel company will net the city $50 million in cash. The total value of the U.S. Steel payment is $20 million with $4 million going to the Gary Community School Corp. and $1 million going to the Gary Public Library.
The devil is in the details of the $5 million costs of the sale-leaseback transaction. Comer said the usual costs includes one year of the debt payment value put aside as a debt payment reserve fund in case the city misses payments. Instead of $3.5 million, the city’s costs will only be $1.75 million. There is a $1.1 million cost of issuance paid to the companies that put the deal together.
Dallas-based Preston Hollow is the sale leaseback bond purchaser and Wells Fargo is the underwriter. Both attended the finance committee meeting.
Council members opposed to the Public Safety Facility deal say it’s too expensive. Repayment costs are $3.5 million over 20 years, at 6% interest totaling $67.2 million. The city is due to make $334,000 monthly payments. Those payments will be drawn from the city’s share of Lake County’s local option income tax. The city receives about $4.7 million annually from that revenue stream.
Some council members also argued the incoming administration should not be saddled with that amount of debt and asked the mayor to delay the sale leaseback. Jerome Prince, likely the incoming mayor since he doesn’t have an opponent in November’s General Election, just announced he will be hosting meetings in each council district to listen to residents’ concerns and suggestions on improving the city.
“I can’t sit in the living room of my constituents and explain this U.S. Steel deal to them,” said city council president Ron Brewer. “They could understand it, if there was a park or piece of fire equipment they could see with U.S. Steel’s name on it. All of that money is just going into the general fund.”
The city will create a TIF district for the steel manufacturer’s investment in the Tin Mill. The $20 million upfront payment shared by the city, school district, and library is part of the $51 million payment in lieu of taxes to be returned to U.S. Steel over the next 25 years.
U.S. Steel’s transaction also includes a $50,000 to $100,000 yearly community benefits agreement. Mayor Freeman-Wilson said those monies will be distributed to the city’s non-profits “like the YWCA, Urban League and others.”
The U.S. Steel agreement will be on the agenda at the next city council meeting.