GARY — The city administration is warning council members Gary is only a couple of months away from having no cash on hand to operate city government.
Calling it a last-ditch effort, mayoral Chief of Staff Dayna Bennett told members of the City Council finance committee Wednesday that the only solution is selling and then leasing back the public safety building at 555 Polk St.
Money from the sale is needed to balance the city's budget, Bennett said.
The sale and lease back would give the city time to implement a “financial recovery plan," Bennett said.
That plan would include a combination of restructuring city departments, centralizing procurement, payroll reductions, revenue enhancements and state legislative changes, Bennett said.
Some skeptical council members, including Rebecca Wyatt, a first-term council member for the 1st District, called the move reckless.
She dubbed it borrowing against the city's future.
“My concern is the administration will not implement the changes necessary because we didn’t get into this mess right away. Since 2012, the administration has been trying to cut costs, attract development and hasn't been able to do so. I don’t have a lot of confidence we can get out of this (mess) by 2020,” Wyatt said.
Others, like Councilman Herb Smith, said he’s on board with the plan to sell the facility.
“If we don’t do anything and run out of cash, we’re dead in the water. Time is our worst enemy right now,” Smith said. “The chickens have come to roost. We’re at a point where we’re stuck. We’re going to run out of cash.”
It’s common for the cash-strapped Gary city government to be on the verge of running out of cash on hand each fiscal year.
But in 2018, the money is running out months earlier than usual, and debt is mounting, officials said.
Councilwoman LaVetta Sparks-Wade, D-6, was taken aback that the city's finances appeared more dire than usual.
"I didn’t know this. How come I wasn’t aware of that?" she asked Bennett.
Bennett said Mayor Karen Freeman-Wilson has presented her financial plan to the public at various meetings and has made it clear the city is under financial pressure.
Gary adopted a $54 million budget for this year, but it is only expected to collect about $30 million in property taxes, according to the county auditor's office.
On the Gary City Council’s agenda next week is a pair of ordinances that would allow for the sale and lease back of the city’s Public Safety Building, where the police department, city court and clerk offices are housed.
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Gary Building Corp.
One ordinance under consideration would allow the city to enter into a lease agreement with the Gary Building Corp., a nonprofit entity created decades ago for the sole purpose of owning and leasing facilities to city government.
The city would sell the building to the corporation for $40 million, and in turn, the corporation would lease the building back to the city.
As part of the plan, the Gary Building Corp. would issue lease rental obligations in a principal amount not to exceed $40 million, with bonds in a series not exceeding 8 percent annually, according to the ordinance. The length of the bond could be between 15 and 22 years.
The city of Gary will set aside local income tax revenue, currently being used to pay debt and operational expenses, to repay the bond debt.
The Gary Building Corp. was founded in 1994 but eventually was dissolved by the state. It recently was reinstated, and the corporation’s board — which consists of two members of the city administration and a Gary resident — had its first meeting two weeks ago, Bennett said.
Some council members, including Sparks-Wade, were taken aback by the news that the corporation was recently reinstated, met weeks ago and that its members consisted of city government employees.
“So we’re using city administrators?” Sparks-Wade asked.
Brandon Comer, an attorney assisting the city, said nonprofits designed for the sole purpose of owning and leasing buildings to another entity is common, particularly for school districts.
Borrowing against the city's future
Council President Ronald Brewer said the city administration should spell out the details of the mayor’s financial recovery plan to council members, who are hesitant to sign off on the sale/lease-back arrangement.
Jim Nowacki, a Gary resident and frequent critic of the mayor, said council members should not confuse capital with the debt they are taking on.
“Capital is money. But here, the bank is loaning to the city based on a city promise to pay back. I would argue this is not capital because it’s not investing in the city. It’s only to pay bills that its council has generated over the last 10, 15 years,” Nowacki said Wednesday night.
At least one other resident agreed, describing the plan as “borrowing against the city’s future children.”
Gary council finance committee chair Mary Brown, D-3, said the council’s hands are tied.
“If we don’t do this, what do we do? Do we do nothing? We’ll run out of cash in two months. No paychecks,” Brown said.