City borrows again to cover center

September 17, 2009 at 12:00a.m.

Photo

Youngstown finance director David Bozanich

Photo

Youngstown Mayor Jay Williams

The city has already paid more than $3 million in interest and expects to pay $700,000 more over the next 12 months.

By DAVID SKOLNICK

CITY HALL REPORTER

YOUNGSTOWN — For the fifth consecutive year, the city is borrowing money to cover the interest on the $11.9 million it borrowed to help fund the Covelli Centre’s construction costs.

To date, the city hasn’t paid a penny toward the $11.9 million principal.

But Mayor Jay Williams and Finance Director David Bozanich said that could change in the near future.

“We’re hopeful in the next two to three years we’ll be able to borrow money long-term” to pay off both the principal and the interest, Bozanich said.

The city would take between 20 and 25 years to pay back the principal and interest on its portion of the construction costs, he said.

Most of the $45 million construction cost, $26.8 million, came from a federal grant obtained by then-U.S. Rep. James A. Traficant Jr. in 2000. The center opened in October 2005.

City council unanimously voted Wednesday to borrow money at an interest rate of 5.27 percent on the $11.9 million debt.

Since it first borrowed money to cover the debt, the city has paid more than $3 million in interest alone.

The city will pay about $700,000 in interest over the next 12 months.

Borrowing money to cover interest payments is “not something we’re doing in perpetuity,” Williams said. “There is a cost for deferring it, but the cost may be worth it if we can get” a low-interest rate on a loan to pay the principle.

The city received $2 million from the state in 2005 to lower Youngstown’s $13.9 million contribution.

City officials say they had verbal commitments from state officials for $2 million in 2007 and $1 million this year to further lower the amount it had to borrow to finish the center’s construction.

In December 2006, then-Gov. Bob Taft and then-state Budget Director Tim Keen told The Vindicator that they weren’t aware of any state commitments to give another $3 million to Youngstown for the construction cost of the center.

City officials said they had hoped the Gov. Ted Strickland administration would provide the $3 million. But city officials have acknowledged for the past two years that money isn’t going to come from the state.

The city initially decided not to seek a long-term loan because of the supposed commitment from Taft’s administration.

When the city considered a long-term loan in 2007, the “credit market shut down” making it difficult to get a good interest rate, Bozanich said.

“The prudent thing to do is to roll it till the credit market settles,” he said.

He expects that to occur in the next two to three years.

Bozanich estimates paying back the loan over 20 to 25 years would cost the city about $1 million annually.

The city-owned Covelli Centre made $253,423 in operating revenue during the first six months of this year. City officials expect the center to lose money in this current quarter, July to September, but are optimistic the facility will turn a profit this year.

The center has never finished the year with an operating profit since it opened almost four years ago.

skolnick@vindy.com