GARY — U.S. Steel long has promised to invest $750 million in making critical improvements and repairs to its flagship Gary Works location over the next five years — but not without strings attached.
The Gary Common Council voted earlier this week on two ordinances outlining a financial arrangement between City Hall and the Pittsburgh-based steelmaker, one of Northwest Indiana's oldest and largest employers.
One ordinance essentially infuses three Gary taxing bodies with a one-time $20 million payment this year. A second ordinance creates a tax increment financing district that freezes U.S. Steel’s property taxes for 25 years.
TIF districts are financial tools used by local governments to fund redevelopment projects, though usually are saved for blighted, underdeveloped areas. When formed, future property tax revenue is frozen over the life of the TIF, and any increases that would have otherwise been realized by taxing bodies are diverted to fuel redevelopment within the district boundaries and pay down bonds associated with the TIF development.
Absent a deal, city consultants and leaders painted an even bleaker financial picture for the cash-strapped city that traditionally relies on short-term loans, fund transfers and tax anticipation warrants each year to stay afloat in the face of a dwindling tax base and population loss.
One ordinance approved Tuesday notes U.S. Steel will borrow $120 million — $100 million of which will finance mill improvements, city officials said.
From that bond, city government will receive $15 million this year to keep the city in the black. The school district will receive $4 million and the library $1 million, for a total of $20 million, city officials said. That money — traditionally paid through property taxes over several years — will instead be disbursed upfront in 2019.
Tuesday's vote came just as the company announced it would be idling one of its three blast furnaces at Gary Works, citing falling steel prices, until the market improves.
Council members skeptical
Without the deal, Gary government will wind up $14.8 million in the red by the end of 2019, said Curtis Whittaker, an accountant hired by the city.
“No one would get paid in January,” Whittaker said.
Councilwomen LaVetta Sparks-Wade and Carolyn Rogers abstained from voting Tuesday night. Sparks-Wade questioned the necessity and wisdom of creating a TIF district that only benefits U.S. Steel.
“Whenever you have a TIF, usually it is to assist in blighted areas, and companies, they can come in and invest,” Sparks-Wade said Wednesday. “But with U.S. Steel being the only beneficiary, it does not benefit anyone else. Nobody else is going to move out to that land and put a business out there. This does not improve the economic development of the area, but what it does is improve is U.S. Steel — a private company. Why would U.S. Steel need our help?”
U.S. Steel’s promise to invest $750 million in Gary Works hinged on the creation of a TIF district, Gary Mayor Karen Freeman-Wilson told Gary Common Council members Tuesday night.
U.S. Steel could “easily have gone to one of the other cities,” she said.
Sparks-Wade called the mayor's comment a "scare tactic."
"The mayor mentioned that if we didn’t do this deal, we may not have been able to get the investment from U.S. steel, and that is, to me, a scare tactic," Sparks-Wade said. "No, U.S. Steel had to invest here. This is their flagship location. They've been here 113 years. They can’t just pack up and move."
President: City hands tied
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Councilwoman Rebecca Wyatt, D-1, who was the only member to vote against the deal, questioned the deal’s benefit to the city other than the one-time, upfront cash infusion.
“That was tax money we would have received (over several years) if we didn’t do this,” Wyatt said.
Before the vote, Council President Ron Brewer said the city is in a tough position because of its poor credit.
He said the U.S. Steel agreement, along with a pending sale and leaseback of its public safety building to shore up $40 million, is critical to the city’s future.
“Pretty much, we have a city that has bad credit. No one wants to loan the city any money here, and we have the opportunity to refinance. And what do you do when you refinance? You pay off all your credit cards and things of that nature, so you get rid of the smaller bills and you get one bill you can manage. And you start over and you put a plan together,” Brewer said.
Sparks-Wade said she abstained from voting because she won’t be on the Common Council next term after she lost running as a mayoral candidate in the primary.
Jerome Prince, who unseated Gary Mayor Karen Freeman-Wilson in the Democratic primary and faces no opposition this fall, should have a say in any long-term debt obligations the city takes on, Sparks-Wade argued.
Van Dyk: We're not liable
Gary Director of Planning and Redevelopment Joseph Van Dyk said U.S. Steel assumes all the risk on the $20 million borrowed in that deal.
“If (investments don't) generate that much revenue, U.S. Steel is still on the hook, and we’re not liable for a penny of that,” he said.
The $750 million investment is expected to generate $51 million in tax revenue over the next 25 years, $20 million of which is going to the city in year one.
Once the $20 million is paid off, the city will receive 45% of tax increments going forward, and U.S. Steel will receive 55%, according to the deal. The deal is capped at $2 billion, Van Dyk said.
Whittaker said it’s smart for the city to take the $20 million upfront, rather than receive it gradually over 25 years.
“And the risk there is, ‘What happens if they don’t make the investment?' What we've done is remove that risk. So even if they don’t invest, we don’t have to pay back a penny of the $20 million. The risk is on them to make the investment,” he said.
Council members Brewer, Mike Brown, Mary Brown, Linda Barnes-Caldwell and Herb Smith voted yes on both ordinances; Rogers and Sparks-Wade abstained, and Wyatt voted against. Council member Mike Protho did not attend the meeting.
Company reps have said the massive investment would not add any new jobs beyond temporary work for contractors but would help preserve the 3,875 steelworker jobs at Gary Works.
Van Dyk said the agreement will be finalized at the Gary Redevelopment Commission's next meeting June 28.