The City of Bayonne could run out of land at the former Ocean Military Terminal and get stuck with massive debt and infrastructure construction requirements if it continues to use developer deposits on land sales to fill current budget gaps, said Councilmen Anthony Chiappone and Gary La Pelusa this week.
The two councilmen, who are opposing borrowing money against the future sales until the city has made significant cuts to its current budget, claim the city could be facing financial ruin within a short time if the optimistic forecasts for the base development fail to materialize.
Under the current plan, the BLRA is selling off portions of the MOTBY, then transferring the money to the city to fill in budget gaps. The city then takes out a loan for the same amount in the guise of municipal bonds to pay for the construction of roads, installation of sewers and other basic services required at the base.
A five year plan started in 2005 calls for the city to bond $20 million a year for five years for a total of $100 million to be paid off when the federal government gives its final release at some point after July 1, 2008.
By that time, the BLRA will have already sold off $100 million of the property, leaving the city’s debt as well as an additional $20 million in BLRA debt to be paid back with the sale of the remaining property.
City officials have estimated the total value of the base as being between $300 to $500 million, so that theoretically, if the BLRA can negotiate for the higher amount, the remaining land would be valued at about $380 million from which the city and BLRA debt would be subtracted.
Under the original plan, the city could expect to bank the remaining $240 million for a rainy day.
But as La Pelusa and Chiappone point out, the city changed the five year plan last year, asking for $25 million from the BLRA and borrowing the same amount. This could result in a reduction of another $40 million from the land left to sell.
Costs for infrastructure for MOTBY may also be much higher than the funds bonded, so that the BLRA and city may have to sell even more of the remaining land to cover the costs to make the property – especially some of the more remote sections – suitable for development.
As pointed out by former Jersey City Mayor Gerald McCann, who was part of a bidding group on Bayonne Bay two years ago, the land nearest to the Light Rail will be the most attractive property to developers.
Since the development is going west to east, those closest to Route 440, the Light Rail and existing public utilities will be the property most sought after, and thus have the greatest market potential.
While Jay Coffey, attorney for the BLRA said The Point section – the farthest out in the harbor – will be the most valuable, McCann said that its development and sale are many years away and face the most serious construction challenges, as well as the stiffest competition for a share of the New York harbor real estate market – and will have to compete with Jersey City’s downtown as well as redeveloped areas near the World Trade Center.
McCann and others say that the most salable property is being sold off now, leaving the less desirable property for later when the city must pay off its debt.
This could mean developers will have an edge in negotiating the purchase of those properties and result in even less financial benefit to the city.
Some critics even believe the city may have to offer abatements to attract developers to those remoter sections or take over some of the infrastructure improvements developers would normally have undertaken. This will mean that even more money from the property sale will have to be used to cover the costs of making the property salable, and this would leave much less money to meet city budget problems or pay the city’s debts.
Although Terrance Malloy, city finance director, said he would push to use remaining sale funds to pay off all city debt – the bonds from the five year plan as well as other debt – Chiappone and La Pelusa said the city may be in no position to bridge the $25 annual budget gap without tapping into whatever funds come from the sale of the remaining land, if the land can be sold in time to meet the budget demand or for a value that doesn’t amount to a developer’s fire sale.
Chiappone also noted that costs for the city will continue to rise, contracts negotiated, raises given, and that unless some effort is made to curb spending now, the city may face significant problems in the near future and will have no remaining land to sell to make up the gap.
City officials say land currently tax-exempt will begin paying taxes as each property is developed, and will be reassessed at each stage of development bringing more cash into the cash-strapped city coffers. But La Pelusa and Chiappone said these properties will also require the city to provide services, cutting significantly into the additional taxes they bring into the city.
Developers also may be more reluctant to start work or push ahead with their various projects in a declining housing market, delaying the positive tax flow the city anticipates. Even the optimistic appraisal offered by the BLRA shows that the MOTBY will not likely see full development and full tax benefits for three decades.