A new way to pay for MOTBY development? City looks into using future taxes to finance infrastructure improvements

At the urging of Mayor Terrence Malloy, the Bayonne City Council at a special meeting on Sept. 17 voted to approve a plan that would allow the city to declare the former Military Ocean Terminal (MOTBY) a Revenue Allocation District (RAD).

The move would give the City Council much more control over the potential costs and benefits associated with the redevelopment of the MOTBY.

While the Bayonne Local Redevelopment Authority would still be the body that would decide what projects would be approved for the base, the mayor and council would have the power to decide whether or not to implement the RAD option.

The RAD concept, which was approved by the state legislature under New Jersey’s Revenue Allocation District Financing Act in 2002, to help encourage private development by using taxes and other revenue generated from a project to help fund infrastructure and redevelopment costs.

Instead of holding taxpayers responsible in paying back bonds taken out for building roads, utilities and other related improvements needed for redevelopment, the city can opt to use future revenues from the development itself to pay the costs. These funds can even be used to construct buildings, parking facilities and residential structures, as well as assist with the payment of engineering costs and the costs associated with bond insurance. RADs are often used to help encourage development in areas that are considered blighted and would not otherwise attract developers.

To meet the requirements, the City Council introduced an ordinance that establishes the MOTBY as a RAD. The ordinance then goes to the state Board of Local Finance for approval. This application for approval must provide a map of the area and the development of a Revenue Allocation Plan. When and if the city decides to bond under RAD, it must again seek approval from the state.

Malloy said the ordinance would return to the City Council for a public hearing in November.

Fits the requirements

Michael O’Connor, executive director of the Bayonne Economic Development Corporation, said the proposed RAD is similar to something done to help develop Jersey Gardens Mall in Elizabeth, N.J.

“MOTBY fits the requirements like a glove,” O’Connor said. “The property is largely vacant and mostly generating no taxes. The RAD would help the city make payments for infrastructure improvements on the property taxes paid by the developer of the site.”

This would include revenue such as parking or hotel taxes, as well.

In separate ordinances scheduled to be introduced over the next few months, the City Council may indeed establish a hotel tax for Bayonne. Since the first new hotels are expected to be developed on the MOTBY in the future, all this revenue would be used to pay down debt for infrastructure improvements.

The City Council is also expected to scale back an originally planned parking lot tax to charge a tax exclusively for facilities on the MOTBY, thus providing more tax revenue that could be used for the RAD.

“The city would put these together to offset the cost taxpayers would otherwise have to pay for bonding the project,” O’Connor said. “It can even be used to pay down existing debt from previous infrastructure improvements.”

Malloy said not every project would need the city to implement RAD loans.

Malloy said the city could be faced with some hard choices when the BLRA receives proposals, such as whether to accept projects that put a lot of money up front but have less of a tax benefit later, or projects that offer little upfront in money but offer significant benefits, such as jobs and future tax revenues, later.

“We could hit a homerun and get a proposal that gives us both cash, jobs and future rateables,” Malloy said. “In that case, we would not evoke the RAD.”

But if a project will provide significant later benefits, the RAD would allow the city to tap into those funds to pay for current expenses for infrastructure, relieving the cash-strapped city from the need to take an offer that provides a lot of upfront cash but little later benefits.

The bonds would be done through the state, and in this regard, could also benefit developers who could tap into lower interest rates for the work. With the cost of development lower, Malloy said, the city might even see better offers from developers who do not have to deal with loan costs.

Although only a few RADs currently exist in the state since the law was modified and implemented in 2005, O’Connor said other areas are looking to establish RADs, such as for the Journal Square area of Jersey City.

More debt?

Critics of RAD, however, said the move would continue bad fiscal practices that are currently used for the development of the base.

Retired Municipal Judge Patrick Conaghan, who is running for mayor in November, said the move would commit future taxes generated from the MOTBY to paying back loans from the state, and he said this was not much different from the current use of bonding used by the city and the BLRA.

“What they’re doing is borrowing and then using taxes we need for the city to pay back the loans,” Conaghan said.

Leonard Kantor also questioned the wisdom of increasing the city’s debt through the RAD program.

In related resolutions, the City Council also agreed to hire two professionals that included a legal firm representative and a Trenton lobbyist at a cost of about $34,500 a year for both.

email to Al Sullivan


© 2000, Newspaper Media Group