Soon-to-depart Gary, Indiana, Mayor Karen Freeman-Wilson continues to pitch a sale-leaseback bond transaction on the city's public safety building as the only way to help get the fiscally distressed city back into the black.
The once thriving steel town has long struggled to recover from a dwindling tax base as businesses and residents fled. At a presentation before city council this week, the mayor, who was defeated in a recent reelection bid, said the transaction would add $42 million to city’s coffers.
Wilson-Freeman, a two-term incumbent, was defeated in the May 7 Democratic primary. Her term runs to the end of the year.
Responding to calls that the deal should be put on hold until Jerome Prince takes office at the start of next year, Freeman-Wilson said the idea is the only option the city has to start the year off with needed revenue. Prince doesn't have a Republican opponent.
“If we don’t do anything, there won’t be any money to begin 2020,” Freeman-Wilson said. “Let me tell you my vested interest in the success of my successor is because for last eight years we have worked very hard and it would be shameful for us to work that hard and for our successor to come in and not have the resources to keep it going.”
Wells Fargo has been selected to lead the sale-leaseback transaction, which would see the city sell its public safety building to an entity called the Gary Building Corp. for $40 million. In turn, the corporation would lease the building back to the city. The building corp. exists for the sole purpose of owning city facilities and leasing them back to the city.
The corporation would issue lease rental obligations in a principal amount not to exceed $40 million, with 20-year bonds with an approximate coupon of 6% with total yield being around 6.3%, according to Brandon Comer, an attorney assisting the city with Comer Capital Group. He spoke at the meeting.
The bonds would be secured by two revenue streams: local income taxes and revenue from a casino local development agreement. The local income tax generates $4.7 million in revenues yearly and the casino local development agreement revenue generates about $6.7 million per year.
Comer said the city's debt service payment would be set at about $3.5 million annually. LIT by itself generates about $4.7 million per year and has been trending up so that one revenue stream should be sufficient to repay debt service, Comer said. “The overage comes back to the city for general operating purposes.”
With all costs added the total repayment over a 20-year period would reach roughly $67.2 million.
“The thought is that [after] the city will be in a much better financial position and therefore its credit will be better and it will be able to refund the bonds at a lower interest rate,” Comer said.
A crucial piece in Gary's recovery efforts is a $750 million investment U.S. Steel is planning to make in its flagship operation in Gary.
Curtis Whittaker, Sr. an accountant with Whittaker & Company, PLLC hired by the city last year, said the investment from U.S. Steel would also help boost the city’s property tax collections which are projected to rise to $44 million from $26 million as a result of the transaction.
“All of these things yield us the ability to repay short-term debt, $8 million borrowed in March and $20 million borrowed in January. It also helps the city end in a positive cash position,” Whittaker said.
