Why Gary, Indiana, is borrowing again
Gary, Indiana’s city council has approved $20.6 million in short-term borrowing against its future tax collections to help manage cash flow.
The borrowing, approved Tuesday, comes on top of a $40 million sales-leaseback bond transaction the city closed in November that brought the city's coffers back into the black and repaid $28 million in short-term borrowing that came due at the end of the year.
Gary Mayor Karen Freeman-Wilson, who leaves office on Dec. 31, said at the Tuesday council meeting that the short-term borrowing is being done for the benefit of Jerome Prince's upcoming administration. Prince defeated Freeman-Wilson in the May 7 Democratic primary for mayor and faced no opposition in the November general election.
"For the first time in over 15 years, the city will end the year with money in the bank," Freeman-Wilson said. "At the same time, the distribution of tax revenue in June and December requires more municipalities to engage in short-term borrowing while waiting for distributions. In our case, we have negotiated on a line of credit of $20.6 million that will be available to Prince team if they need it for cash flow. If they don’t need it, then there is no interest fee."
The resolution passed by the council on Tuesday allowed the city to negotiate for tax anticipation warrants with two entities.
“We thought that we would have the final answer in terms of the base rate from either the Hammond bond bank or the Indiana bond bank. We don’t have that yet, so we are going to ask that the council pass both in order to get possible rate on the loan for the city,” Freeman-Wilson said.
The city has long relied on borrowing to maintain its day-to-day operations and other expenses but hasn't always been in the position to repay the loans. It has struggled economically for years, losing residents and businesses. Gary’s deficit grew to $42.5 million in 2019 from $7.3 million in 2018.
Without the sale-leaseback deal, the city would have run out of cash by the end of the year, with the yearly deficit projected to grow between $3 million and $5 million yearly, reaching $58 million by 2023 according to Curtis Whittaker of Whittaker & Co., a financial analyst hired by the city last year.
The city would have also been at risk of defaulting on $28 million of short-term tax anticipation warrants.
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.
Whittaker 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.