The City is a step closer to owning the Jake Godbold City Annex after a City Council committee Tuesday approved spending up to $15.4 million in banking funds to acquire the building from the Police and Fire Pension Fund.
The measure was approved 6-0 by the Council Finance Committee and must still be approved by the full Council.
The price of the building at 407 N. Laura St. is more than $14 million, with the difference consisting of debt service costs.
Legislation approved in 2006 transferred the building to the fund, which completed renovations. It then leased space to the City, with departments occupying it in mid-2009.
The City spent $1.19 million in annual rent for the first four years of the lease. In the next four-year period, which starts this year, the rent rises 12 percent, or annually to $1.3 million. To date, the City has paid $4.8 million.
Rent increases 12 percent every four years through years 41-44. The building would remain with the fund because the current deal is just financing.
The 2006 agreement allows an opportunity for the City to purchase the building every four years. That window opened May 1, with the City needing to notify the fund in writing within 90 days of that date.
Once it does, the inspection and closing must be completed within 90 days after exercising the option.
The next opportunity would be May 2017 with the purchase price increasing to $15.7 million, up $1.4 from its current $14.3 million price.
The 2006 legislation approved the fund acquiring the building and renovating it in exchange for a $3 million reduction to the fund's unfunded accrued actuarial liability, for which the City is responsible.
The fund also waived $4 million in pension obligations in return for the redevelopment of the Laura Street Trio, which has not taken place.
The Property Appraiser has a tentative 2013 assessment of the building at $5.2 million.
The purchase price is calculated by adding the fund's $3 million price, plus $10 million in the fund's out-of-pocket expenses, which have increased 3 percent each year.
"I think it's responsible for us to do this, plus I think it's a good deal for the City," Council Vice President Bill Gulliford, the bill's sponsor, told the committee Tuesday.
In past interviews on the issue, Gulliford said he "hates" using the banking fund — or borrowing money — for such a purpose, but called it a "prudent business decision."
Finance Committee member Stephen Joost on Tuesday said he also did not want to draw on the line of credit and offered an amendment to strip $9 million from a Downtown economic development fund for the Downtown Investment Authority and apply it toward the purchase, with the remaining borrowed from the banking fund.
"We should not be borrowing on our banking fund," Joost said. "We made a commitment."
The $9 million for economic development was proposed by Mayor Alvin Brown in January and approved by Council in March, with proponents saying placing the money in the fund would send a signal that the City is serious about revitalizing Downtown.
Joost contended that any worthy Downtown project that needed funding could instead come from the banking fund and allocating the $9 million is "just changing the order we are doing things in."
Council Auditor Kirk Sherman told the committee the banking fund has about $500 million issued.
"I don't want to borrow $9 million when we don't have to," Joost said.
Finance member Lori Boyer said people are looking at Downtown opportunities in part because the $9 million has been placed in the fund and taking it away now would create an issue for "all of those plans on the drawing board."
She was one of several who denied the amendment.
Gulliford offered an amendment that was approved that requires the City Finance Department to structure the borrowing in a way to annually use the entire amount of funds that would be spent on rent for amortization of the loan. It also adds $60,000 to the purchase costs to account for a scrivener's error.
He said the building would be paid off in 131/2 years and the City would own the building and save about $90 million.
Approval by the full Council will require a two-thirds vote by members in attendance instead of a simple majority because of an amendment adopted in September to the capital-improvement program.
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