Mayor McNally did right thing in rejecting 20 Federal Place bid

Although Youngstown MAYOR John A. McNally is adamant that city government should not be a landlord, his decision not to accept a $1.973 million offer for 20 Federal Place, the former Phar-Mor Inc. downtown headquarters, is absolutely the right one. The possible fallout from the sale could have been devastating to the city’s financial well-being.

Indeed, given the projected $2 million shortfall in this year’s operating budget, caution is demanded in all decisions that could affect the bottom line.

“I’m not entirely thrilled with the city being a landlord, but we need to do what’s best for the city, and this is what’s best for the city at this point,” McNally said after he rejected the purchase offer from NYO Property Group.

The mayor explained that the tenants at 20 Federal Place, led by VXI Global Solutions, a call center with 1,100 employees, were concerned about the impact of the sale on their leases.

VXI’s opinion is of particular importance to the city because the company not only employs most of the workers in the building — there are 200 or so who work for other companies — but has the potential for growth.

While NYO, which owns several buildings downtown, insisted that it was committed to working with the tenants, there were legitimate concerns about the deal. That’s because the prospective buyer also wanted the city-owned parking lot on Commerce Street near the back of the building.

McNally made it clear from the very beginning that the parking lot was not part of the deal. The lot is used by the employees of VXI Global and the other companies that lease space in 20 Federal Place.

LENGTHY PAYMENT PLAN

The other problem with NYO’s proposal was the way it had structured the payment of the $1,973,000. The company wanted to make a $200,000 down payment and then only pay interest of $52,000 a year for two years. It was willing to pay 3.5 percent interest for six years.

In the third year of the six-year payment plan, NYO would have given the city $200,000, plus the $52,000 in interest.

In the fourth and fifth years, the $200,000 principle payments would have been bolstered by interest of $45,500 and $38,500, respectively. In the sixth year, NYO would have paid $900,000, plus $31,500 in interest.

While the numbers may look good on paper, the deal was not in the best interest of the city. For one thing, the city government’s financial problems are more immediate, and it would derive little benefit from a six-year payment plan.

But more importantly, the city makes a profit from the building.

How? The 1,300 or so workers pay 2.75 percent income tax, which last year amounted to $930,000. After expenses related to the operation and maintenance of 20 Federal Place, the city had a profit of $347,000.

Given the anticipated loss in revenue this year, the extra money will come in handy. With a cut in employees at the private prison, the closing of the postal service distribution center and the reduction of an annual payment from Vallourec Star, the city is being forced to reassess it spending priorities.

A reduction in city government’s payroll appears inevitable given that there aren’t any sources of new revenue on the horizon.