Wednesday, August 25, 2010

Newark NJ Mulls $50 Million Sale Leaseback of City Properties - August 25, 2010

Desperate to close an $83 million deficit, Newark plans to sell one of the last assets it has remaining. Itself, one municipal building at a time.

Police precincts, fire houses and office buildings are being eyed for a sale the city council hopes will generate $50 million for the 2010 budget.

The financial gambit calls for the Essex County Improvement Authority to sell bonds to buy the buildings and then lease them back to Newark over a period of years, according to a plan laid out Tuesday by city and county officials.

It’s a costly and risky solution. With capital improvements, fees and services, the deal is expected to cost the city about $60 million in the long term.

Before any of that happens, the city will have to run through a gauntlet of bureaucracy at warp speed. The plan has to be approved by the authority, the Newark City Council, the Essex County Freeholders, and the state Local Finance Board.

But city leaders say they are running out of time and options to forestall a crippling financial meltdown. Without a solution soon the city will be forced to levy a 30 percent tax increase. Even with the "lease-back" revenue, Newark is facing a possible 20 percent property tax hike and more than 600 layoffs.

The city must have the $50 million in its accounts by mid-November in order to guarantee a balanced budget for this year — and avoid a potential takeover by the state. City officials Tuesday said there was no room for error or delay.

"We’ve built a calendar around a Nov. 12 to a Nov. 18 window, and we’ve worked backward," said Henry Amoroso, a paid city budget consultant. "This is unprecedentedly tight."

City leaders and budget experts disagree on how the city found itself in a budget crisis. Some say the mayor should have attacked the city’s bloated spending years ago. Others say the recession has choked off revenues at the worst possible time for Newark.

Though selling your police precincts seems a bizarre way to raise money, some urban experts say it's a solution that’s catching on.

"The variety of places that are exploring a variety of measures is really quite striking," said Mark Muro, senior fellow at the Brookings Institution. Newark is "really quite in the mainstream," he said.

Mayor Cory Booker’s office would not provide the list of properties being considered, but Amoroso said the buildings had to be in reasonably good condition and the city had to be the tenant. The finance building on Broad Street, one of Newark’s main drags, was mentioned as a good example, along with the city welfare building and the child and family well-being building. The only building not on the table is City Hall, officials said.

"We’re going to follow the council’s leadership on which buildings" to sell, said Booker, who stressed that the idea is being pushed by city council members. "At the end of the day, they’re the deciders. They and the Essex County Improvement Authority."

Essex County Executive Joseph DiVincenzo said as long as bond buyers and not taxpayers were the only ones liable in the transaction, he would support it, but he warned that it is far from a done deal.

"It’s just in the beginning stages," DiVincenzo said. "There’s a lot of work that has to be done. Every building has to be appraised."

Newark will pay the county between $50,000 and $100,000 to appraise the properties as well as hire their own evaluators.

The plan was first floated by West Ward Councilman Ronald Rice as one of several alternatives to the creation of a municipal utilities authority to manage the city’s water. When the council tabled the MUA, it was left with a $70 million hole in the 2010 budget. That number has grown to $83 million, Amoroso said Tuesday.

Rice said he is glad the administration is working more closely with the council after the failure of the MUA.

"I have to give my colleagues credit. They’re the ones who were emphatic that the administration drill down on these ideas," Rice said. "We were told put up or shut up, so we started putting up." Sphere: Related Content

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