The city will pay $466,675 less this year than in 2011 on the interest it owes for building the Covelli Centre after seeking proposals for a loan through competitive bidding.
The interest rate will drop from 4.98 percent last year to 1 percent, and give the city-owned center its best opportunity to actually make a profit on a facility that has lost money every year since it opened in October 2005.
Not including the $113,250 the city will pay in interest with the 1 percent rate, it has paid $5,028,145 in interest on an $11.9 million loan during the past seven years.
The idea to seek proposals for the Covelli loan came from David Eichenthal, director of management and budget consulting for the PFM Group, which is conducting a Youngstown government efficiency study, according to Mayor Charles Sammarone.
The study, expected to be finished at the end of the month, costs $250,000, but the city has received $50,000 each from the U.S. Department of Housing and Urban Development and the Raymond John Wean Foundation to reduce its expense for the report.
Eichenthal’s Covelli Centre idea already has more than paid the city’s expense for his study on how to more efficiently run city government, Sammarone said.
“It’s not that we’re doing everything wrong, but there are better ways to do things, and this is one of them,” Sammarone said. “He found a better way. I don’t blame anyone” for not doing this before.
Huntington Bank, and its predecessor Sky Bank, has been the only lending institution willing to lend money to the city to pay the annual interest on the $11.9 million it borrowed to pay its share of constructing the $45 million center, said city Finance Director David Bozanich.
“We had unsuccessful discussions with several banks to request their participation in purchasing the notes over the years,” he said. “The financial market two to four years ago was difficult because of the economic issues.”
The annual interest rate from Huntington/Sky has ranged from 4.98 percent to 6.88 percent. The most the city paid in annual interest was $818,720 in 2007. It paid $579,925 last year on 4.98 percent interest, the lowest rate it received before this year.
The city sought proposals from nine banks this year, receiving bids from two: 3.5 percent from Huntington and 1 percent from Key Bank.
Council will vote Wednesday to approve the Key Bank proposal, which will cost the city $113,250 — $466,675 less than it paid in interest on the center last year.
The city started paying toward the $11.9 million principal cost last year, paying $275,000. This year, it will pay $300,000.
That leaves the city still owing $11,325,000 on the center.
The PFM study is part of Youngstown’s involvement in the federal Strong Cities, Strong Communities (SC2) initiative, designed to give struggling cities the needed resources to spur economic growth and operational efficiency.
Also, the city hired a different firm last week for $10,000 a month, up to $50,000 total, for an operational study of the Covelli Centre.
Sammarone wants to not only cut costs but sell or lease the center. A lease is more likely than selling, he said. The mayor wants to wait for both studies to be finished before making a decision on what to do with the sports and entertainment facility.
The center has made annual operating profits since 2009 but has not earned enough money to cover the debt owed by the city to build it.
With a low-interest payment and the $300,000 that will go toward the principal of that loan, this could be the first time the center will make an actual profit.
As of June 30, the center’s operating surplus for the first six months of the year was $288,075. Also, during the first six months of this year, the city made $106,815 from a 5.5 percent admission tax on tickets sold at the arena.
Those two amounts are only $18,360 shy of matching what the city will pay in principal and interest this year.
Also, Eric Ryan, the center’s executive director, has said he expects the facility to give $500,000 to $600,000 this year to the city between an operating surplus and the admission tax.