Gary's Public Safety Facility

What the sale leaseback of public safety facility means for Gary

Contributed By:The 411 News

With the mayor attending a conference in the nation’s capitol, her chief of staff Dayna Bennett was the point person Wednesday as the Gary City Council finance committee considered the administration’s proposal of a sale leaseback of the Public Safety Facility at 555 Polk Street.

Controversy surrounds the proposal since the facility is home to the Gary Police Department, Gary City Clerk, and Gary City Court. Bennett said the sale leaseback will give the city a much needed infusion of up to $40 million in cash “which will allow us to reduce the deficit over the course of a three-year recovery period.”

In 2017, the city’s deficit was $13.7 million. It had total expenses of $124.6 million and total revenues of $110.9 million. The city has not operated under a balanced budget since the Scott King Administration. Mayor Freeman-Wilson has said the amount of debt has decreased during her administration, but the decline in property tax collections and falling property values keeps the city behind in paying its bills.

Today’s outstanding debt is $26 million compared to $43 million in 2012.

Casino revenues since the mayor took office in 2012 have also fallen – from $21.2 million then to $14.7 million, today.

The sale leaseback is a major part of the administration’s 3-year recovery plan, Bennett told the finance committee. “Funds from the sale leaseback along with cost reductions in city operations and new revenue generation methods will enable the city to balance its budget by 2020,” Bennett said.

In a statement, Mayor Freeman-Wilson said, “Some of the measures that are currently being implemented in accordance with the plan are the consolidation of city buildings, the consolidation of city departments and job functions, the reduction of insurance costs and the utilization of technology to increase efficiency and reduce waste.”

Currently, over half of city revenues go to employee wages, health insurance, and infrastructure, the mayor’s statement said.

Sale leasebacks are commonly used transactions in the commercial real estate industry to satisfy an immediate need for a massive amount of cash by the seller. The buyer, usually an investor, leases the property back to the seller for a long-term period until the sale price is repaid. In the city’s case, the public safety facility sale leaseback is going out to investors in the municipal bond market.

Arranging the bond sale for the city are James D. Shanahan, an attorney with Taft, Stettinius & Hollister LLP and the city’s recovery financial advisor Brandon Comer of Comer Capital, LLC.

“This is a last ditch effort. The city will run out of money in a couple of months,” Comer told the committee, “and it cannot continue borrowing with tax anticipation warrants because that is getting too costly.”

Comer said the sale leaseback will be repaid from revenues it receives from the county’s local income tax that is withheld from employee paychecks, like state and federal income taxes. The city receives $4.7 million yearly from the tax.

Since the repayment money is coming from the local income tax, “there is no risk of the city defaulting on the payments,” Comer said.

Shanahan said, “Cash from the sale will not go into a city bank account. It will be deposited in a trustee bank account. All disbursements from the account will have to be approved by the city council.” The city will continue using and will have the responsibility of maintaining the facility, Shanahan said.

Bennett said the public will be able to see all disbursements from the trustee account on the city’s website.

Seven council members were present at the committee meeting, with only two, LaVetta Sparks-Wade and Rebecca Wyatt having questions about the proposal.

The city council could vote on the proposal at its next meeting of the full council.

Story Posted:09/14/2018