GARY — The Gary Common Council approved an ordinance to sell and lease back the city’s public safety building during its public meeting Tuesday night, despite opposition from some council members wary of taking on a long-term debt obligation.
In a 6-3 vote, the council passed Ordinance 2019-33 on a third and final reading. The measure had already passed by the same tally in earlier readings last year, but was deferred as the city sought more favorable terms on the deal.
The ordinance authorizes the sale of the building at 555 Polk St. to the Gary Building Corp., a nonprofit created for the sole purpose of owning and leasing facilities to city government.
Under the law, the city can sell the building to the nonprofit for as much as $40 million, depending on an appraisal, then lease it back in a 20-year rental agreement. The lease payments would be financed through a bond issue, with an annual interest rate not to exceed 8%, Freeman-Wilson said.
At that rate, monthly payments on a 20-year, $40 million bond issue would amount to about $334,500, according to an amortization schedule presented at the meeting. The city would end up paying about $80.3 million over the course of the deal, with $40.3 million paid as interest.
Addressing the council, Freeman-Wilson said the deal would generate $30 million in revenue for 2019, and another $5 million in 2020. The remaining $5 million would be used to pay existing debt and deal-structuring costs.
“What this will allow us to do is to be debt-free,” Freeman-Wilson said, referring to payment of Gary’s current obligations. “(The sale-leaseback bonds) will be the primary debt for the city.”
Supporters of the ordinance contend the sale-leaseback plan is the best way to generate operating cash the government needs to keep running over the next 18 months. In recent years, the city has come close to running out of money before the end of the fiscal year. The mayor’s office says other forms of short-term borrowing, such as tax anticipation warrants and transfers from TIF districts, are no longer sufficient to keep the government afloat.
“This administration has to run the city for the next six months, and we need the dollars,” Freeman-Wilson said.
The sale-leaseback ordinance comes in the larger context of the administration's financial recovery plan, which includes selling off city-owned real estate to plug budget holes. Freeman-Wilson says the plan has already generated more than $11 million in operating cash.
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“This is something we can leave as a blueprint for the next administration,” Freeman-Wilson told the council. “While it is ambitious, it is doable.”
Supporting the measure Tuesday were Herb Smith, D-at large; Ron Brewer, D-at large; Michael A. Brown, D-at large, Michael Protho, D-2; Mary Brown, D-3; and Linda Barnes-Caldwell, D-5. Opposed were Rebecca Wyatt, D-1; Carolyn Rogers, D-4; and LaVetta Sparks-Wade, D-6.
Sparks-Wade, a frequent critic of the mayor, unsuccessfully urged the council to defer the issue until the next administration takes office in January.
“We have another opportunity to really think about this issue, because last year we didn't know who the next mayor was going to be, and now we do,” Sparks-Wade said, referring to Democratic primary winner Jerome Prince, who will almost certainly take office after the general election.
Wyatt echoed Sparks-Wade’s concerns, arguing the deal’s long-term debt burden was too heavy to justify the immediate cash infusion.
“The way I see it, it’s too expensive of a debt,” Wyatt said. “We will have tied up our revenue streams to go toward the debt service.”
A major unanswered question remaining after the vote was how much the public safety building is worth on the open market. The appraised value cited by Freeman-Wilson was determined on the basis of replacement cost, not fair market value.
A number of public commenters at Tuesday’s meeting doubted the building could fetch $40 million.
“This proposal far exceeds the market value (of the building),” Gary resident and public activist Jim Nowacki said, calling the appraisal a “fraud” perpetrated on the council.