For years, Hoboken has been slowly eating into the eventual profit from the proposed sale of the 1.1-acre site on Observer Highway.
But this year, the City Council has chosen not to compound the problem by borrowing against the proposed sale - and as a result, this has left $3.7 million hole in a budget that is a total of $11.7 million dollars short.
An ordinance before the City Council two weeks ago to insert $3.7 million into the budget by issuing bonds on the municipal garage was voted down by seven of nine members.
The only member in favor of the bond issuance was Councilwoman At-Large Terry LaBruno, and Councilman At-Large Ruben Ramos abstained. He said in an interview later that night that he didn't have enough information to vote either way.
According to Director of Community Development Fred Bado, the city agreed to wait up to two years to sell the garage while they try to acquire a site for a new garage.
According to this timeline, the city would not expect the sale to impact the 2007-2008 budget year.
The municipal garage has long been a budget-gap filler, and the council decided it has gone on for long enough.
City owes on July 1 for last bond
The city also has an outstanding $13.9 million bond related to a transaction they made in which they sold the garage in 2005 to a county agency, leased it back, and were relieved of their debt to the agency by a financial services firm (see below).
The city has to pay the entire $13.9 million this July 1, the beginning of the new fiscal year, unless it passes a measure to extend the bond.
A separate ordinance to extend the terms of this bond was tabled until the regular council meeting this coming Wednesday.
If the council chooses, they can extend the financing of the bond through 2010. The option with this bond pertains to the next fiscal year and does not impact this year's budget.
Otherwise, the city must pay the full amount of $13.9 million on the first day of the new fiscal year (July 1) in its next budget, or it will lose the garage property to foreclosure.
If the council does not extend the financing and decides to pay off the bond to avoid forclosure, the full amount will immediately create a hole in next year's budget.
In 2005, the municipal garage was sold for $13.8 million to the Hudson County Improvement Authority (HCIA), a quasi-governmental county agency that tends to help fill city budget gaps with deals like this one. The HCIA leased the property back by Hoboken for about $250,000, a number equal to the interest on the HCIA's bond.
In the agreement, if the HCIA were to sell the garage, it arranged for Hoboken to reap any profit after the HCIA recouped their initial investment.
The municipal garage has long been a budget gap filler.
This forced the city to bond for $5 million with NW Financial Group to cover a budget line for the anticipated sale.
NW Financial bought out Hoboken's debt with the HCIA, becoming the sole lease holding company for the garage.
The city has been paying NW Financial $100,000 per month to continue using the site, and the Bond Anticipation Notice - $13.9 million, in full - is due on July 1.
Debt service in the budget has risen dramatically, in part, from the continued borrowing against the sale.
The city has tried twice more to seek bids for the garage, with some questionable stipulations.
The last attempt allowed bidders to make offers two ways, with a maximum of nine stories, or with a bid capped at $25.5 million.
The process drew criticism from some, and in the end, the highest offer was disallowed because it proposed more money than the bid process allowed, and more stories to the building than sought.
The winning bidder, S. Hekemian Group, bid $25.5 million and was the only bidder to meet all of the city's requirements.
However, a different developer has filed a lawsuit against the city. MDK Development LLC was one of two other offers, but they did not make an official bid because they said they had concerns about the legality of the bid process. They filed a joint suit with resident Maurice DeGennaro against the city.
The lawsuit is scheduled to go before state Superior Court Judge Edward T. O'Connor on June 26 and, if MDK and DeGennaro win, the bid process will start all over again.
Change of redevelopment plan
The council also approved at its May 22 meeting an ordinance to send the redevelopment plan for the site back to the Planning Board for amendments.
The amendment would allow for the same amount of 240 residential units be built, but at a height of 12 stories on Observer Highway, and eight stories in other sections.
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