By VICKI URBANIK

If its acquisition of bankrupt Bethlehem Steel Corporation goes through, International Steel Group will voluntarily pay local units of government an estimated $8.2 million this year and next while dropping all pending tax appeals that could have forced taxpayers to refund the steelmaker up to $34 million.

In addition, local taxing units will receive a settlement of $10.8 million in back taxes. Though Bethlehem owes nearly $30 million, the amount is higher than what many officials had expected out of bankruptcy court.

Those are among the terms in a major tax agreement tentatively reached in recent days between ISG and the 11 taxing units impacted by the Bethlehem bankruptcy, most notably the county government, Duneland Schools, Westchester Public Library and Burns Harbor.

The tax agreement is expected to contain additional provisions directly affecting the town of Burns Harbor, but as of late this morning, negotiations on that language were still underway.

The agreement is expected to be presented tonight for the Porter County Council’s formal approval. Other taxing units will be asked to sign off on the deal as well.

The public release of the tax agreement, which officials have so far kept confidential, comes just one day before the Bethlehem Board of Directors is due to take a vote on ISG’s acquisition bid of the Burns Harbor plant and other Bethlehem assets.

This morning, the tax agreement was lauded as representing the best deal that local taxing units could hope for, given certain realities.

Under the worst case scenario, local government units could face another two full years of no tax payments on the Burns Harbor plant. Legally, Bethlehem is still responsible for property taxes payable in 2003 and 2004; ISG, assuming it becomes the new owner, won’t have to pay taxes until 2005.

Given Bethlehem’s bankruptcy and financial state, Porter County Council attorney Dave Hollenbeck said: “The odds of them paying us anything are slim to none.”

Bethlehem’s tax bill from 2002, which wasn’t paid, totaled $19.6 million. ISG, by contrast, has agreed to pay an amount estimated at $8.2 million this year and next in lieu of those tax payments.

ISG tax consultant Guy Gadomski said the payment is based on the taxes that Bethlehem would have paid on its real property (buildings and land) only.

When asked why ISG has offered the payment when it isn’t legally obligated to, Gadomski said ISG is aware of the financial hardships that the Bethlehem bankruptcy has had on local taxing units. “It’s important that these entities remain viable,” he said.

Personal property (equipment and machinery) used to make up the bulk of Bethlehem’s tax bills, but is expected to take on a significantly lesser role under an ISG acquisition. While Bethlehem’s annual tax bills once topped $20 million, ISG’s total bill has been roughly projected to be half as much.

Hollenbeck noted that if the tax agreement is rejected, which is still possible, or if the Bethlehem board turns down ISG’s offer tomorrow, then the provisions tentatively agreed to by the local units in recent days will have to be readdressed. But under the current situation, the tax agreement is a benefit for local government, he said.

“Under the circumstances and given the facts we’re dealing with ... I believe it to be an excellent resolution for the local units of government,” he said.

Duneland Superintendent Dr. Dirk Baer said the provision in the tax agreement that is the most attractive to the Duneland Schools is ISG’s and Bethlehem’s offer to abandon all pending tax appeals.

Bethlehem has several tax appeals at the county and state level dating back to 1996 challenging its assessed valuation. It has now been estimated that if the appeals are granted in full, local units may have to refund Bethlehem up to $34 million.

The proposed agreement abandons all pending appeals. Baer said this provision removes a big uncertainty for the school system. “You can’t squeeze blood from a turnip,” he said of the prospects of the Duneland School having to issue Bethlehem or ISG a refund.

Baer said overall, the tax agreement represents the best deal for the local taxing units.

“It is not what we hoped for. Obviously, what we hoped for was 100 percent,” both in back taxes and this year’s and future tax payments, Baer said.

But he added: “Realistically, I think it was the best we could do.”

The $8.2 million payment in lieu of taxes will cause some hardship this year for Duneland, Baer said, since this year’s budget was based on Bethlehem resuming full payment of its taxes.

He said that clearly, additional legislative help for the schools will be necessary. The settlement involving the back taxes will be used to repay the state loan, and possibly, so will Duneland’s share of the $8.2 million.

“We’ll keep the belt tightened,” he said.

As of this morning, negotiations were still underway involving language affecting Burns Harbor. ISG consultant Doug Schrader of Public Affairs Associates said he is optimistic that a resolution will be reached very soon with the town that will be to the town’s benefit.

“We are working with the folks at Burns Harbor and progress is being made,” he said. “There are a number of issues still under negotiation.”

He noted that Burns Harbor, which used to get 85 percent of its tax levy from Bethlehem, has scaled back its budget to the bare bones and has unique needs. ISG is working hard to address the town’s concerns, he said.

“These are the kinds of things any good corporate citizen cares about,” he said. “....They don’t want to see the town of Burns Harbor go under.”

Posted 1/28/2003