Dear Editor:
Amidst an unsettled municipal FY2000 budget crisis Jersey City, after seven years, has received the final payment from the bulk lien sales of 1993 and 1994. In an exchange of letters between a citizen and Mayor Schundler in the local daily last month the mayor defended his part in the bulk lien sales by claiming he had hit a home run. It’s more like a foul ball. Millions of tax dollars were diverted from the city treasury into the pockets of Wall Street investors and the city lost control of hundreds of parcels of property which were foreclosed for the enrichment of private interests. The promised benefits to the taxpayers were never realized. Doesn’t the mayor remember how he described the benefits the sale would bring to the city? The Bond Buyer on June 21, 1993 reported, “Schundler said it is unlikely Jersey City would have collected anything close to the $50 million he said would probably be generated for the city by the $45 million in bonds and notes over the next six years.” Six days later in The Star-Ledger, Dan Weissman wrote, “Schundler said taxes could be cut as much as 20 percent as a result of the dollars generated by the tax lien sale, virtually eliminating the local municipal portion of the property tax bill. And he said next year there would be an additional $20 million break.” Later on September 17, 1993, the New York Times quoted Michael Cook, the mayor’s then chief of staff, “Jersey City expected to begin collecting on the subordinated debt in 1996 and finish in 1998. The city is also exploring the possibility of selling the subordinated debt as a way to collect the revenue now instead of waiting for the collection process to take its course.” In 1994, the city conducted a second bulk lien sale and solicited bids for the subordinate note from the first sale. On June 14, the Jersey Journal headline was “Lien sale turns disappointing.” The sale of the 1993 note was canceled for lack of satisfactory bonds.” The record is clear the city received from both sales $31,473,100 in cash and two subordinate notes for $26,267,681 plus interest. The cash equaled 54 2 cents on a dollar. The $57,740,781 worth of liens which had a potential 18 percent annual interest rate were turned over to the two trusts established by CS First Boston. The specially enacted state legislation which permitted the sale of tax liens for cash and paper provided the city should receive not less than 70 percent. The mayor’s statement that “their (the liens) market value was zero” at the time of the sale is pure hyperbole. He knows he received a detailed letter, dated February 22, 1993, from CS First Boston estimating a net of $22.5 million. At that time it was not known whether a trust or a special purpose corporation would be created. Under the terms of the recent settlement in the city’s legal action against Breen Capital Services and Bankers Trust the city received $6.25 million and surrendered the two notes totaling $26,267,681 to Breen. The city forfeited the interest accruing since 1993. This was the interest the mayor claimed in 1993 which was going to bring the total return to $50 million. These are the same notes for which the city was to receive $10 million in the uncompleted sale the city negotiated in January 1997. There will be no recovery from the annual servicing fees of 1.45 percent of the aggregate lien balance plus the incentive servicing fees equal to 1.5 percent of all amounts collected as payments or redemptions paid to Breen. Not only will the city not be reimbursed for its legal fees of at least a quarter of a million dollars, but the law firm additionally will receive $600,000 from the settlement. Breen is no longer subject to any inquiry by the city if any liens were sold for less than face value without the consent of the city. There is at least one such case on record. Ironically, it shows the costliness of losing control of the liens. The city was informed in 1997 that a lien with a face value of $32,511.90 was assigned by Breen for $3,800. This summer the city purchased the property back for $22,000. The mayor blames Breen for the failure to realize the return from the two sales. Where was the oversight by the city? There were early signs that the liquidation of the liens to repay the bondholders was in trouble. On February 23, 1994, the city council unanimously requested from Breen Capital the list of 500 properties that Breen had assigned to three law firms who had sent 30 day notices in preparation for foreclosures. The failed sale of the subordinated note was a further danger signal. The original sale which the Investment Dealers’ Digest labeled one of the 11 most innovative financial deals of 1993 has exacerbated the city’s chronic budget problems instead of being a solution. The mayor’s claim that the sales accelerated the collection of current taxes bears examination. No doubt the trusts made some attempt to protect their liens from subsequent liens which would have had priority. Who paid, if any one, the taxes on the 50 properties against which foreclosure action had been taken? Other than the $10 million from the first sale which was credited to current taxes in 1993 where is there a direct connection? Property values are stable and property owners have an incentive to protect their equity by paying taxes. Yes, the record shows increased tax collections percentages for each year since the mayor has been in office. The city’s books show the city has received more taxes than anticipated each year yet the city has failed to show a cash surplus during the same periods as available to reduce the budget. The bulk sale served you well, mayor, for the election of 1993. Unfortunately, time has shown it did not turn out as well for the city’s taxpayers. Jerome Lazarus