Officials in Bayonne, N.J., had planned to use tax increment financing to renovate a former military site into a mixed-use development but will now need to consider other financing options due to a new state stimulus law.
The new stimulus initiative replaces tax increment financing, called revenue allocation district, or RAD, financing in New Jersey, with a new economic redevelopment and growth grant program. The ERGG program will offer grants to developers in areas in need of redevelopment.
The new program could be used to transform Bayonne's 430-acre former Military Ocean Terminal, now called the Peninsula at Bayonne Harbor, into residential and commercial developments.
The Bayonne Local Redevelopment Authority and city officials are now reviewing the new ERGG program.
"We were progressing down a path with the RAD process and obviously things all take time but the stimulus bill actually seems to be more streamlined than going through the process of creating and expanding a RAD," said Stephen Gallo, chief of staff for Bayonne Mayor Mark Smith. "So in that sense it's an improvement. And it will be used where indicated to get projects off the ground."
The area could still benefit from redevelopment area bonds, or RABs, which tend to involve payments in lieu of taxes. Joe Baumann, bond attorney at McManimon & Scotland LLC, the BLRA's bond counsel, said that while the new stimulus law forces the municipality to re-examine development financing at the Peninsula, the ERGG program could assist the project, in the end.
"It's definitely an effort to try and significantly spur redevelopment, so we're all trying to figure out how to use it now," Baumann said. "But the redevelopment area bonds are still alive and well and we're using a lot of those - we've still got a lot of those transactions."
One benefit of RADs is that they can help finance needed improvements in neighboring redevelopment sites, whereas RAB proceeds are tied to a specific project.
"It's just the project itself has to produce the [revenues], whereas in the RAD you could have one project producing [revenues] to pay for infrastructure for the next project," Baumann said. "And so the RAD was designed to deal with a district like the Peninsula."
The ERGG program could also be used in the Peninsula. It offers developers up to 75% of incremental revenue derived from redevelopment to cover up to 20% of a project's total cost. Developers would receive the revenues - once a project generates additional revenue - for a period of 20 years in return for supplying 20% equity in the project.
Available revenue streams include state and local taxes including property tax receipts, sales-tax revenue, business and wage taxes, hotel taxes, parking taxes, and any other revenue generated from the development.
That expands the pool of available revenue sources as RADs are primarily paid back with incremental property taxes. Many say that the old RAD law was cumbersome and did not produce very many RAD deals throughout the state.
In addition, Tim Lizura, senior vice president for business development at the New Jersey Economic Development Authority, said RAD financing creates new districts with governing power that collect the additional revenue for the life of the project.
Instead, the ERGG program would allow the state and municipalities to receive those incremental revenues once a project is paid off, a benefit that Bayonne could utilize.
"I think they may be disappointed that they had gone through the effort to set up a RAD," Lizura said. "But the short-term disappointment will be outweighed by the long-term benefit."
