In 2005, the City of Bayonne instituted a five-year plan that would make use of money received from companies seeking to purchase parcels of land at the former Military Ocean Terminal.
Because of a stipulation set by the federal government in turning over the base to the city, the city cannot directly access funds from sales of land. Until at least July 1, 2008, revenue received from the land must be used to build infrastructure at the MOTBY, such as installing sewers, buildings roads, or providing utilities.
To get around this, the BLRA would give deposits from the developers to the city to cover budget gaps and the city would bond (borrow) the same amount to cover the costs of future infrastructure improvements.
The problem is the BLRA never actually receives any money as a deposit.
Instead the developer deposits the funds into a bank account, and the BLRA bonds (borrows) against the deposit.
This means the BLRA is paying finance and bonding charges each year in order to supply the cash-strapped city with the funds needed to balance the budget.
These are short term bonds that come due every two years, and must be refinanced until the point at which federal restrictions are lifted and the BLRA can legally turn over the land to the developers.
The MOTBY is broken up into six development districts: Harbor Station, Bayonne Bay, The Landing, the Loft, the Point and Maritime districts. Over the last three years, BLRA has taken deposits from developments for Harbor Station and Bayonne Bay, and shortly expects to sign agreements for additional properties shortly.
This is the third year of the five-year plan, and the BLRA has bonded three times in order to cover the budget gaps and currently has about $64 million in bonds.
Because the first of these two-year bonds has came due on April 12, the BLRA voted at its March 29 meeting to refinance the $20 million in bonds borrowed against a deposit on the Harbor Station District by Fidelco in 2005.
"These were two year notes and we are using some of the $31 million pay it and the interest," said Nancy Kist, executive director for BLRA.
Although the full impact of this refinancing package is partly disguised by additional projects to be included in the new $31 million bond, the cost to the city for the first aspect of the five-year plan jumped by an additional $3.2 million.
"We also have to make a $5.3 million payment to the city for services rendered," Kist said.
The remaining$2.2 million would be used to fund local matching grants, such as the state Green Acres grant for the extension of Harbor View Park, as well as grants to deal with coastal erosion, and Homeland Security upgrades.
Kist said in response to questions by former mayoral candidate Leonard Kantor that the BLRA decided to bundle these needs into a single bond.
Councilmen Gary La Pelusa and Anthony Chiappone have raised concerns about the increasing dependence on debt to cover budget costs, saying that the city may find itself in dire straights if it doesn't cut back on spending to trim some of the annual budget gaps.
While the BLRA will be able to pay off a portion of its debt when federal restrictions are lifted and title to the land can be transferred to the developers, financing and refinancing costs will require the BLRA to sell additional properties.
Next year, BLRA may also have to refinance other parts of this debt as later bonds become due if the federal government does not lift its restrictions in 2008.
In addition to this, for the city to pay off its bonds and bonding costs, it will have to sell off additional sections of land.
In yet another twist in this complicated trail of debt, Fidelco - when it made its $20 million deposit two years ago - had to actually borrow the money and required the City of Bayonne to underwrite the loan.
According to Jay Coffey, director of the City of Bayonne Law Department, Fidelco used the city as a kind of co-signer to guarantee that the bank would be repaid if something went wrong.
"This was a condition of the agreement with Fidelco that allowed the BLRA to access the funds," Coffey said.
In other words, Fidelco borrowed $20 million to give to the BLRA as a down payment on Harbor Station, and in turn, the BLRA borrowed against this $20 million to give to the city to balance its budget. Then the city borrowed $20 million in order to cover the costs of infrastructure improvements the BLRA needs to make at the MOTBY. On top of this, had Fidelco failed to make the payments on the original $20 million loan, the City of Bayonne would be required to pay off the loan as part of the initial agreement.
Former Jersey City Mayor Gerald McCann, who was part of a group that submitted a proposal for the development of Bayonne Bay, questioned the legality of the city underwriting the Fidelco loan.
"How can the city guarantee that loan when the BLRA is supposed to get the money as a down payment?" he asked.
Coffey said the request is not unusual.
"This allowed us to access the money," he said, noting that no such agreement exists with the other developers.
Coffey also noted that the state Board of Local Finance reviews each of these bonding proposals, and has approved them.
Scrap the trolley system?
During the public comment portion of the meeting, Kantor criticized plans to install a trolley car system on the base, saying that the BLRA should be lobbying the state to expand the Hudson Bergen Light Rail line onto the base instead. He noted that stations already exist near Route 440 at the foot of the MOBTY and that a line could be installed along existing rights of way to the end where a ferry terminal might be built.
"This would save a lot of money," he said, noting additionally that a trolley system left many unanswered questions, such as who would run the system, who would maintain the system, and where the cars would be stored when not in use.
Kist said that the BLRA is not committed to building the system if the cost is not feasible.
Currently, rail cars from the Newark subway system are in storage in Jersey City for possible use as trolley cars. The redevelopment plan for the site wanted to use this system as a way of discouraging auto traffic within MOTBY, and as a means of accessing the Light Rail terminals near Route 440.
Expanding the ship berths
Kist said work on the docks is continuing with extension of a section called N-1 underway. This is part of a project to expand the cruise port capability. Currently, the base is operating with one fully-functional berth and that ongoing work will provide more space for docking.
Kist said bulk heads - which maintain the stability of the shore line - are deteriorating in places and need to be rebuilt.
Late in April, Port Liberty cruise operations will begin again and will continue year-round from now on, and the dock is designed to allow more ships to use the facility.
In connection with the docks, the BLRA has also authorized Kist to apply for a permit with the Army Corps of Engineers to undertake maintenance dredging for the next 10 years. Prior to this, the BLRA operated under the permit issued to the site when it still operated as a military base.
"We had to do more sampling and had to explain how we intend to dispose of the dredge material," Kist said. "We already have New Jersey's permission."
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