In my opinion, after studying all the proposed legislation and supporting documents, as well as applying my background in finance and real estate development, I believe the proposed project as structured shifts too much of the potential reward to the redeveloper and too much of the risk to the township. The major issues for me, briefly:
1. Projections of revenue for the project are based on the best of all possible world projections. If the redeveloper is correct that a market exists for a luxury rental building on the site and those projections come true, then the financial side of the project works. If it doesn’t, the town will potentially suffer as much or more than the redeveloper. We get 10 percent of gross revenues as a Payment in Lieu of Taxes (PILOT). That can go down as low as zero in the first two years once the project has its certificate of occupancy, then to no less than $650K annually starting in 2016-17. The town’s financial advisor projects the PILOT at slightly under $950,000.
The town’s financial advisor projects that the redeveloper will be paying about $150,000 in property taxes on the underlying land excluding any additional value from the redevelopment (“land taxes”); the town gets about a third of that. We give the redeveloper credit for the land taxes, so we don’t see any more of that out of the PILOT. Then we have roughly $200-250K in annual debt service on our half of the $6.3 million in bonds (unless we have to pay the redeveloper’s half if he can’t) to be issued and given to the redeveloper, starting mid-2012. Then we will be paying roughly $10K for every child in the public schools. The town has provided two estimates using two methods. The first projects 17 students. The other projects 11 percent of units (school district projects 42) — that’s 37 kids, or $370K. At that point, the town will be in the hole even before it starts paying for police, fire and other services. That to me is not much of a buffer to this risk.
2. The town is proposing to issue $6.3 million in taxpayer-guaranteed long-term bonds to give to the redeveloper. The stated purpose is to fund various infrastructure projects, all of which we would not be doing except to support the development. This issuance will raise the town’s debt outstanding nearly 12% to $63 million. The town will be paying interest on the borrowings for at least two years, and maybe more, without any revenue from the project. We will borrow the interest, estimated at about $200,000, and pay it off over 30 years with interest.
What the transaction actually does is provide extremely low-cost long-term financing to the redeveloper that he could not even come close to obtaining on his own because the markets consider this to be such a risky project. The redeveloper will pay half the debt service. If the redeveloper runs into financial trouble, because he can’t get enough revenue to cover his obligations, and defaults on these payments, the town will be secured by a lien on the redevelopment property. However, the town is obligated to make these payments as they come due. In the event of extended litigation or other unforeseen contingencies, it may be some time before these liens produce the required revenue. The town will have to make the debt service payments, which will in effect raise everyone’s property taxes. It’s a cash-flow risk. On top of this, if we get to this lien, it means the project, and thus the town, is in serious trouble.
3. We are giving the redeveloper a significant discount on the property taxes he would otherwise be paying on the project. The estimates we’ve received so far put the assessment of Phase 1 at $78.7 million with annual property taxes of $2.45 million. No matter how you value the PILOT, that discount is huge – amounting to at least $1.5 million or only 1/3 of what the redeveloper would be paying at market rate. That’s a huge benefit and transfer of resources from the town to the redeveloper, and in my opinion way too generous of an incentive.
4. The town says it will ask the state for a waiver of the affordable housing obligation in this Phase 1. It won’t tell me how many units or cost, but it was planning to give the redeveloper $5.7 million in the original 2006 redevelopment agreement to fund this. The modification agreement that the council voted 4-1 (me voting no) April 3 to approve carries the potential for the two sides to not agree on moving forward to Phases 2 and 3. If that happens, the town will potentially get stuck with fulfilling that obligation. The town has declined to get the redeveloper to post any sort of security to make sure that obligation gets done if they go away.
5. The Planning Board in 2007 sidestepped the town’s ordinance requiring 2.5 spaces per unit in favor of one-third less, 1.67 spaces, citing some sort of shared parking plan and the separate zoning and planning authority of the Redevelopment Area. I can’t get anyone to explain to me exactly how that happened. The traffic/parking study approved by the Planning Board literally has language that excludes the entire Phase 1 property (the current proposal) from its description of the redevelopment area – and it’s unclear how this may have affected the study results. The study also appears to severely underestimate the peak-hours traffic generated by the 635-space garage with one exit on Charles Street. It recommends a traffic light at Lakeside and Main, but not one at Charles and Main. If you think traffic around this area is bad now, just wait …
I voted against the re-presented bond ordinance on first reading, both to introduce and to approve on first reading. I also asked the council to defer consideration on this ordinance until we have fully reviewed the project. I was once again out-voted 4-1. The final two pieces of enabling legislation were approved 4-1 on April 3.
You can review video and summaries of council meetings at www.WestOrangeGrassroots.org, a website I maintain. Information on the project is on the town website at http://bit.ly/zkShlc and http://bit.ly/sKkuL8. Please consider sending a link to this page to others who you think would be interested in this issue.
I’m in favor of redevelopment there, just not this project as proposed.