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GARY — The City Council has approved borrowing about $8 million to cover the cash-strapped city’s day-to-day operations and other expenses until Mayor Karen Freeman-Wilson’s halted plan to sell and lease back the city’s Public Safety Building can be finalized.

The cash will help pay the city’s police and fire pension obligations, payroll and health insurance costs.

Freeman-Wilson first presented the City Council late last year with plans to sell and lease back the city’s public safety building on Polk Street for nearly $40 million as a last-ditch effort to stay afloat, with expectations the sale would be finalized before year’s end.

However, the plan stalled, she said, and won’t be completed until the end of April.

“We need the money now, but the interest rates are just not there,” she said.

A frequent critic of Gary government, James Nowacki questioned the city's "constant borrowing" at Wednesday's council meeting. 

"We call it a temporary loan, and yet we know that this is temporary only to the extent that every single year we have to renew it like a payday loan," he said. "You cannot balance your budget by borrowing." 

Freeman-Wilson told The Times “misinformation” surrounding the city’s misuse of $8.2 million from the city’s Emergency Medical Services fund led investment firms to think twice about offering a low enough interest rate for the sale/leaseback deal.

“Certainly there was a misperception that some stealing was going on,” Freeman-Wilson said. “I don’t want anyone to think I’m blaming anybody, but ‘misappropriation’ looks better in a headline. I think that is misleading. In this instance, while it is clear money was used outside of the council’s knowledge and prescription, it was used for legitimate city purposes.”

About $8.2 million was improperly transferred from the city’s emergency services fund to cover payroll and other expenses in the face of a multimillion-dollar structural deficit beginning in January 2015.

The practice continued through March of last year, with the blame falling on the then-deputy controller and then-controller in the Finance Department. 

About half of the $8.2 million was used to cover payroll, and $1.3 million was inappropriately transferred to the city’s Blight Elimination Fund, a reimbursement account for federal Hardest Hit grant money to help tear down blighted homes.

Local municipalities are required to spend money up front to obtain federal Hardest Hit dollars. 

In speaking with The Times, Freeman-Wilson contended all EMS funds has “been accounted for,” but when asked about the status of blight funding, she said it’s still unknown if the city, once reimbursed by the federal government, returned the money to the Ambulance Fund.

“That should be the next stage of the detailed accounting,” she said.

Regardless, the extensive negative publicity received in the EMS funding controversy made investors skeptical, she said.

None of the council members present Wednesday night spoke against Freeman-Wilson’s request, though Sixth District Councilwoman LaVetta Sparks-Wade voted against the measure. 

Sparks-Wade is running for mayor in the upcoming primary election and was the most vocal council member about the EMS fund misuse.

Sparks-Wade voted against the sale/leaseback last year. She could not be reached for comment Thursday.

Freeman-Wilson said while the city was on track to run out of money late last year, an unexpected $5 million in tax receipts is keeping government afloat a little longer.

The $8 million will be repaid from money expected to come in at the end of April with the finalizing of the sale/leaseback, she said.

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Northlake County Reporter

Lauren covers North Lake County government, breaking news, crime and environmental issues for The Times. She previously worked at The Herald-News in Joliet. She holds a master’s degree in Public Affairs Reporting.