Lease deal designed to make up fund gap

The $3.5 million plan would give the city more financial flexibility.
By DAVID SKOLNICK
CITY HALL REPORTER
YOUNGSTOWN -- City council will consider Wednesday whether to OK the lease of up to $3.5 million worth of equipment at its convocation center as part of a plan to provide financial flexibility for the facility and help make up a projected funding gap.
The city already borrowed $12 million at 6.5 percent interest from Sky Bank in late August to fund the center's construction. The one-year Sky Bank note will be converted later to a 20-year bond.
The city originally had a tentative $3.5 million lease deal with National City Bank. But the city wanted to pay back the bank over a period of at least seven years and National City was only willing to give it five years, said David Bozanich, the city's finance director.
Instead, the city worked out a tentative eight-year deal, that must be approved by council, with M & amp;I Equipment Finance Co., a subsidiary of M & amp;I Bank, based in Milwaukee, for the lease agreement, Bozanich said. M & amp;I Equipment leased $451 million in equipment to various entities in 2004, according to its Web site.
Council meets at 5:30 p.m. Wednesday.
The National City and the M & amp;I leases both carried the same 6.65 percent interest rate.
City's options
The city has already bought costly equipment for its convocation center. The M & amp;I agreement would allow the company to buy that equipment from the city and then lease it back to the city at the 6.65 percent rate, Bozanich said.
The city would then use the money to pay for construction and other costs related to the facility, and have more financial flexibility, he said.
Although the city can lease up to $3.5 million worth of equipment, it doesn't plan to exceed $2 million, Bozanich said.
Construction costs won't be finalized until December, but the city expects the project to cost about $45.38 million. When the final cost is determined, the city will have a better picture as to how much money is needed to make up the construction funding gap and could lower the M & amp;I lease and/or Sky Bank loan amounts, Bozanich said.
Between the $12 million from Sky Bank and the lease on equipment up to $2 million, the city would use as much as $14 million to make up a projected funding gap for the arena. The M & amp;I lease money could also be used for improvements to the facility.
Bozanich strongly emphasized that the M & amp;I deal is a lease and therefore is not considered debt.
Also, the city received verbal assurances that the state, through its capital fund, would provide $3 million more for the facility during the next few years, and that would reduce the arena's debt, Bozanich said.
The state has already given $2 million to the city for the center.
Most of the center's cost was paid with a $26.8 million federal grant.
The city had a $1 million contingency fund as part of the $45.38 million projected cost of the arena. There is about $250,000 to $300,000 left in that fund, Bozanich said. The city may use a portion of that money to erect a marquee on the center, which held its first paid event on Saturday.
skolnick@vindy.com