Bayonne, N.J., officials are working on a response to a U.S. Army letter that questions the exchange of funds between the city and the Bayonne Local Redevelopment Authority in relation to land-sale proceeds from the area’s former military base.
None of the funds in question have been used to back notes sold by the city, but the funds have been used to help balance city budgets. Under a 2001 agreement, the U.S. Army sold the 430-acre Military Ocean Terminal to the BLRA for $1, with the stipulation that the city could not receive land-sale proceeds until July 2008.
Since that agreement, the city has sold bonds to help finance redevelopment projects at the former base, now called the Peninsula project. In return, the authority has given the city proceeds it has received from developers in land sales.
Bayonne officials refer to these transactions as “swaps” between the authority and the city and believe the exchange of funds is legal as the city is not directly receiving the land-sale proceeds.
“The authority, acting on legal advice, believes that the swap was proper, but the authority respects the position of the Army and will discuss the matter with the Army,” said Daniel Kurtz, BLRA’s deputy executive director.
Kurtz added the authority will respond to the Army’s letter “in due course.”
Earlier this year, Bayonne’s City Council approved selling $23 million of notes to support infrastructure projects at the site, in exchange for an equal amount of cash from the authority. That BLRA money was then to be used to help the city close a $25 million deficit for fiscal 2007, yet officials postponed the note sale and the exchange of funds due to the military’s inquiry into the swaps between the authority and the city, according to Bayonne spokesman Joe Ryan.
“You can’t use bonding, per se, to plug the budget gap, but you can use funds from the developer to plug the budget gap,” Ryan said. “So, the theory was that you would need bonds for infrastructure so if there was a swap arranged, the infrastructure would still be done and the budget would still be taken care of.”
Exactly how much earlier swap arrangements total and when they took place is unclear. Ryan said the city sold approximately $20 million of debt to help balance the fiscal 2005 budget and officials approved another $25 million of debt to help fill the budget gap for fiscal 2006, but that amount decreased due to changes in land sales.
“Part of that ended up being carried over to fiscal year 2007 since one of the developers withdrew and that money had to be made up,” Ryan said.
Kurtz referred requests for swap details to the authority’s bond counsel, McManimon & Scotland LLC, which did not respond to an e-mail request or phone messages. The city does not have an outside financial adviser.
Bayonne has about $110 million of outstanding debt, including notes. Moody’s Investors Service rates the city’s long-term debt Baa3.
The U.S. Army isn’t the only one to question BLRA practices. The authority recently received $35 million of a $90 million purchase agreement from Ports America Inc. to develop an automobile cargo port on 90 acres of land. The closing date for that transaction is Jan. 31. Yet prior to the Ports America deal, in September, the BLRA agreed to sell the land to the Port Authority of New York and New Jersey to develop a breakbulk cargo facility, with the Port Authority paying $50.5 million up front along with $86 million in infrastructure improvements. In addition, the Port Authority would pay $1.5 million annually for 20 years, with that amount increasing each year based on the consumer price index.
In a change of plans, the BLRA last month backed out of the Port Authority contract, claiming the BLRA did not give sufficient notice to the public for the hearing to approve the land sale.
In response, the Port Authority filed a complaint in Hudson County Superior Court on Nov. 26. The BLRA is required to file a response within 35 days. Kurtz declined to comment on the issue. Port Authority spokesman Marc LaVorgna said his authority had a signed, completed, and recorded contract.
