Waiting and hoping 2008 municipal budget may hinge on outcome of 2007 budget

With the city already $23 million short in its current 2007 budget, Councilman Gary La Pelusa said he may be forced to vote against a proposed $17 million bond that will help balance the 2008 budget.

“I know we wanted to do [the 2008] early so that whatever cuts we made would be most effective, but if we can’t come up with $23 million, we’re not going to come up with $17 million more. So there’s no point in voting on it,” LaPelusa said last week.

The 2007 fiscal year ends this June 30, and the council is hoping to pass a budget for the coming year soon. But it is still worrying about the 2007 budget, as the city has until Aug. 10 to come up with $23 million to fill the budget gap or risk state action. Some officials believe the city may be granted an extension.

A bigger problem may be the necessity of going even deeper into debt by the selling of tax anticipation notes at a time when the city’s credit rating could make that a hefty additional cost. Cities generally sell tax anticipation notes to have operating funds while the elected officials work on and eventually pass the municipal budget.

Because the city of Bayonne passed its budget at the end of May 2007 with only one month left until the budget expired on June 30, the city had to rely on tax anticipation notes for several months.

But some question whether the city will be able to develop the former Military Ocean Terminal (MOTBY) soon and reap revenues from the new development – or at all. The expected sale of land at the MOTBY, through which the city was expected to fill the $23 million budget gap, has yet to be concluded, leaving the city with few options except to raise taxes if the sale does not happen soon.

Waiting for the Army and development

Jay Coffey, director of the city’s Law Department, said developers will not give the city the money until the U.S. Army – which turned over the land to the city for redevelopment – gives its blessing.

“We have not heard back from the Army, but they are not at fault,” Coffey said. “This is not a ‘blame’ scenario. The developers want the Army removed from the environmental equation. The Army is cautious in its approach to items like this, and the BLRA [Bayonne Local Redevelopment Authority] won’t be able to close these transactions until this issue is resolved. Those are just the facts. The Army moves at a very slow pace. Developers want to move at a much faster pace. It is what it is.”

While Coffey has put a positive spin on the situation, saying that action by the Army is “slow” but inevitable, others believe that the Army may pose a serious roadblock to residential development at MOTBY, putting the city in the precarious position of having to fill its budget gaps by raising taxes or drastically cutting spending.

Port unions have questions about changes in MOTBY plans

Representatives of the Longshoremen’s International Association (LIA) who are pushing to have a portion of the MOTBY developed as a container port said the Army is apparently concerned about pockets of contamination that have been sealed but could risk exposure by careless development, putting the Army at legal risk.

Members of a LIA coalition point out that the plans submitted as part of the city’s application for taking the base over from the U.S. Army free of charge listed industrial uses such as a maritime district – most notably a container port operation. The plan also proposed about 325 residential units.

The redevelopment plan that was passed by the BLRA and the City Council, and that later received the blessing of several state agencies, had expanded the residential development to more than 7,000 units, with port operations reduced to a much smaller part of the base. A container port operation was later abandoned entirely by the city.

Officials from the ILA have filed a complaint with the Army about this change, raising some questions as to whether the delay may have something to do with this change of use.

Since the city has already taken significant deposits on the sale of property over the last three years, the impact of the Army’s refusal to allow residential development could put the city in an even deeper economic hole. The city has already used nearly $45 million in advanced payments to bridge budget gaps in 2005 and 2006. If the Army refuses to allow residential development, the city would have to pay that $45 million back, as well as debt accrued as a result of accepting it, such as bonding costs and interest on bonds.

Bonding is a question

La Pelusa, who along with Councilman Anthony Chiappone has been a critic of this spend-then-borrow policy, said that the city should have cut costs first, then sought to borrow.

Chiappone was particularly concerned over the last two years about passing a budget prior to actually receiving funds from the developers. Over the last two years, Chiappone’s dire warnings have proven correct. In 2006, a potential development company, H.R. Horton pulled out of a deal near the end of the budget year, plunging the city budget into an $11 million deficit. The state allowed the city to carry that $11 million into the 2007 budget. Last January, the city received the money from a different developer to cover that gap. But the city still needed additional land sales to cover an operational gap of $25 million.

La Pelusa and Chiappone held out their approval until Mayor Joseph Doria and other council members agreed to stringent austerity measures for the 2008 budget – which included a laundry list of items ranging from non-union employees being required to pay a portion of their health insurance premiums to the layoff of personnel.

“Last week, the council refused to make non-union employees pay some of their premiums,” La Pelusa said. “That makes me less confident that the council will live up to the other promises they made.”

Short $23 million from last year’s budget and with other council members balking at the stringent cuts, La Pelusa said he cannot vote to put the city another $17 million in debt.

“I like to see things done in steps,” he said. “I don’t see any steps being taken here. We’re hearing that the city will lay off 91 people. I’m told that there will be an emergency meeting on Wednesday [July 25]. I am going to propose we table the $17 million bond until we fulfill last year’s bond.”

Development will come – but not soon

Gerald McCann, the former mayor of Jersey City and a member of a group who had bid on a portion of the MOTBY property two years ago, said the issue really isn’t about the contamination, but rather the slowing housing market.

“The contaminated area is just too small,” he said during a telephone interview. “This is about developers being reluctant to commit to building when the housing market has dropped. This is what I tried to warn the council about last January, but they wouldn’t let me speak.”

McCann said the city is caught in a bind since this is the second year in a row the city has come up short on the money needed to fund the budget.

Under state regulations, the state could force the city to raise taxes and cut spending.

McCann, however, said doom and gloom predictions about housing development on the base are not true.

“There is every likelihood that development will take place there, but in three to five years as the market recovers,” he said. “Right now, there are plenty of sellers and no buyers. The real estate boom the City of Bayonne was relying on is over.”

McCann suggested that the city might get around the Army concerns by changing the phases of development to develop the non-contaminated areas until the issue can be addressed.

“I think the developers are more concerned about the market, and the city is simply using the Army as an excuse,” McCann said.

While there is a call to develop MOTBY as a container port, McCann disagrees with it.

“A container port won’t solve the problem,” he said.

email to Al Sullivan