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The city council unanimously approved a waterfront infrastructure financing plan at the Feb. 20 council meeting — but not before a presentation and a public hearing on the proposed agreement.

Mayor Ed Johnson, Deputy Mayor John Loffredo, Councilwoman Sue Henderson and Councilman Kevin Sanders were present and voted yes on the ordinances that put the plan in place. Councilman James Bruno was absent.

To start, city manager Terence Reidy led a presentation on the plan during the meeting’s workshop session. Later, residents were able to speak during a public hearing.

RECENT HISTORY OF WATERFRONT REDEVELOPMENT

The agreement’s history dates back to 2002, when the city entered a waterfront redevelopment agreement with the original Asbury Partners, Reidy said. In the agreement, Asbury Partners agreed to fund the entire infrastructure of the waterfront through contributions from subsequent developers.

At that point, repair costs were estimated to be about $40 million. Asbury Partners invested $40 million in infrastructure repairs, but only finished about half of the job. Now, the total cost of repairs is estimated at $80 million, meaning an additional $40 million or more must be invested.

Asbury Partners borrowed $100 million from iStar Financial to fund development in the waterfront area. The redeveloper later defaulted on that loan. Asbury Partners had put up the land it owned as well as development rights in the waterfront as collateral. When Asbury Partners defaulted on that loan, iStar Financial stepped into the redeveloper’s shoes. Now, Asbury Partners is owned mainly by iStar Financial, with Madison Marquette recently acquiring a minority ownership.

At that point, development at the waterfront had been stalled for four to five years, Reidy said. The city and iStar Financial, now functioning as waterfront redeveloper Asbury Partners, for a year looked for ways to kick-start waterfront redevelopment, but “were not successful,” Reidy said.

“The city was quite frustrated watching this major asset of our city languish,” Reidy said.

The city took iStar to court, positing that iStar should lose the development rights because of the stall. The case was sent to arbitration, where Judge Nicholas Politan reviewed it and passed down a ruling, Reidy said.

The ruling stated that iStar would not lose its development rights, but that it would be “placed on a clock,” Reidy said, with concrete deadlines for development to be completed in phases.

Politan also required iStar to notify all property owners in the waterfront within one year whether their property would be taken through eminent domain.

Finally, Politan said the redeveloper and the city must collaborate and design a funding mechanism that would pay for the estimated $40 million in necessary infrastructure repairs.

Also, “given the density and type of construction that today’s [housing] market will accept,” the amount of residential units to be built in the waterfront redevelopment area was reduced from 3,164 to 2,200, Reidy said.

“So that’s a 30 percent reduction in the amount of units you’re going to be able to sell, a 25 percent reduction in the market value of the homes, and a cost of infrastructure that has doubled,” Reidy said.

Reidy called on city financial analyst Mike Hanley and city redevelopment attorney Glenn Scotland to give a final presentation of the plan to the council and the public.

THE PLAN

The city will issue bonds to Asbury Partners over time, totalling no more than $58 million. Asbury Partners and subsequent redevelopers — and ultimately, homeowners of the new properties — will be subject to a payment in lieu of taxes [PILOT] program.

Typically, PILOT programs exist to attract new homeowners into developments. Under a PILOT program, developers and then homeowners make a payment to the city instead of paying typical property taxes. They pay an amount equal to city property taxes, plus a 5-percent payment to the county. They do not pay school property taxes, and their county taxes are significantly lower than those paid by typical homeowners. This results in an all-around lower tax bill.

But this PILOT program is functioning along with a special assessment, so property owners will pay the same total amount in property taxes as they would without a PILOT agreement. The city will still receive its share of property taxes and the county will get its statutorily required 5 percent, but the funds normally dedicated to the school tax and the remainder of the county tax will pay debt service on the bonds used to fund infrastructure repairs over the next 30 years.

A typical taxpayer pays about 57 cents of each dollar in property taxes to the city; about 23 cents of each dollar to the school; and about 20 cents to the county. For property owners participating in the PILOT and special assessment program, 57 cents of each taxpayer dollar will go to the city; five percent of that, or just under three cents, will go to the county; and the remaining 40 cents will pay debt service on the bonds.

The PILOT program expires in 30 years. After that, residents of the new developments in the waterfront area will see their property tax bills being divided in the same was as a typical bill is, with portions benefiting the city, the county and the school.

The city is not at risk for the bonds in the event that Asbury Partners cannot pay them back, Scotland said. They are redevelopment area bonds, which were created through state legislation adopted in 2003, he said. Those bonds allow incremental amounts of certain types of taxes to pay for the improvements necessary for redevelopment projects.

The city council is acting as the designated redevelopment entity when it approves and issues the bonds, Scotland said.

The bonds will be acquired in small increments over time. It is estimated the first bond will be worth $1.5 million to $2 million.

The developer remains completely responsible for seeing to the repairs in the waterfront area, Scotland said.

Property owners who currently live in the waterfront redevelopment area will not be subject to this plan unless they redevelop their properties, Scotland said. The criteria for redevelopment are set forth through common law. For example, a property owner who increases the number of units in his or her building is considered to be redeveloping.

Property owners performing maintenance on their buildings are not considered to be redeveloping and will not participate in the PILOT and special assessment agreement, Scotland said.

The ordinances and resolutions approved at the meeting included a master agreement where the master redeveloper, Asbury Partners, agreed to pay special assessments for the entire cost of infrastructure in the waterfront, Scotland said. The redeveloper has the ability to assign the payments to subsequent developers, he said.

The first developer to take advantage of the program is Urban Renewal LLC, the group constructing the Vive townhome complex on the corner of Cookman and Kingsley avenues. The council approved an ordinance establishing the PILOT program and special assessment with that developer.

The city submitted the plans for the infrastructure finance program to the state’s Local Finance Board and received favorable feedback. The plan was also vetted by the NJ Economic Development Authority and the Division of Local Government Services.

“[The Local Finance Board] found the program to be very good,” Scotland said, “not averse to economic or social interests of residents of the city.”

The bonds will not exceed a 30-year period to reach maturity, Scotland said.

The city will own the infrastructure work after it is completed, Scotland said. Also, the city will benefit from the new taxpayers in a waterfront that’s now largely vacant, he said.

Mayor Ed Johnson asked Scotland what would happen in a worst-case scenario.

“Anyone who knows Asbury Park knows that unexpected storm clouds can gather at any moment and we can be derailed,” he said. “So if the developer goes bankrupt, if the subsequent developer the bonds were assigned to goes bankrupt, if Hurricane Bob comes next year and blows away this development and there are no families living in [the waterfront redevelopment area] and paying these special assessments, how is the city on the hook?”

“The city is not on the hook,” Scotland said.

“How does the bond get paid?” Johnson asked.

“The bond-holders hold that risk,” Scotland said.

Councilwoman Sue Henderson said she was surprised to have learned that the bonds do not count toward the city’s total debit obligation, and there is no risk to the city, “even if the redeveloper goes belly-up.”

If the developers are unable to pay the special assessments, tax liens will be issued against them, Scotland said. The city could sell a lien that isn’t paid within two years, and would have the right to foreclose on the corresponding property.  The program was designed with the intention of putting the city first in line in the event that liens are issued, Reidy said. Ordinarily, municipalities can find themselves second or third in line when lienholders pay penalties.

The agreement “will promote redevelopment in the city, especially in all those vacant lots down there,” Henderson said, adding it could bring 5,000 permanent jobs and 3,000 construction jobs to the city.

THE PUBLIC SPEAKS

During the regular meeting, the city held a public hearing on the ordinance where residents were invited to ask questions about the plan, with no time limits.

City resident Rita Marano asked what a special assessment is, and why one is necessary in this plan.

Special assessments are charges imposed on property owners for certain improvements benefit a property, Scotland said. Typically, they are for water or sewer improvements or sidewalk improvements. New roads and landscaping can also be tacked onto special assessment charges. Special assessments can be conferred under redevelopment area financing law, with a developer agreeing to the assessment on behalf of future property owners, or they can be conferred in local improvement law.

Marano asked why the $58 million in bonds was necessary.

“There has to be a mechanism to raise funds for improvements so there can be a project built,” Scotland said. “The whole purpose for the program is that the money needs to be raised up front.”

Marano also asked if the infrastructure finance plan was included in the 2002 waterfront redevelopment agreement.

The obligation to build the infrastructure was written into the agreement, Scotland said. This way of funding those infrastructure improvements is new.

Marano suggested the redeveloper itself had caused blight in the waterfront by knocking down buildings for the last 10 years. She also said the city had lost millions of dollars in property tax revenue because of the destruction of those buildings.

Reidy agreed that the city has lost property tax ratables at the beach front, but said this plan is “the beginning of replacing those ratables.”

For example, Scotland said, for the construction site where the Vive townhomes are being built, about $15,000 to $18,000 in property taxes is paid to the city annually. The city keeps 50 to 60 percent of this payment, or $8,000 to $9,000, while the remainder goes to the school and the county. Under the infrastructure finance plan and after Vive is built out, the city will receive $137,000 per year in property taxes for the Vive lot.

Deputy Mayor John G. Loffredo said the buildings knocked down in the waterfront area had been “an eyesore.”

“You’re talking about a bunch of junk buildings you wanted to stand, just because they were paying taxes,” he said. “People want to reinvest.”

Gerry Scarano, a Long Branch resident, also spoke to the council. He asked if the city would be protected in case a bondholder tried to cash in or collect bond money and the developer or property owners had not paid the assessment.

The city has “built in a couple of protections,” Scotland said. “We believe the special assessments give the city protection because the city will be protected in [the event of a developer’s] bankruptcy better than just a PILOT program would be.”

Scarano asked if other towns had programs where PILOT agreements were in effect for 30 years.

Long Branch has a PILOT program lasting 25 years, Scotland said.

Scarano asked what would happen when the state begins to wean the school district off of state aid. Asbury Park School District is designated as an Abbot district, meaning the state pays a significant amount of its operating costs.

Reidy responded that the vacant lots in the waterfront redevelopment area barely contribute any money to the school district, and that this plan will be a catalyst to development, generating “tens of millions of dollars in revenue for all the residents in Asbury Park” in the long run, he said.

Scarano suggested the council scale down the plan, saying 40 percent of the full tax bill for 30 years was too much money and too long a time period. He suggested a 10-year plan instead, with a lower bond amount to start.

“It’s too long of a program,” he said. “Tweak it down.”

City council candidate John Moor asked if the typical taxpayer will see his or her county taxes increase due to the five-percent payment in the waterfront area.

“Say right now the county tax bill [for the entire city] is $100,” he said. “The PILOT people would be paying $5. The rest of us would be paying $95.”

Scotland said this was not the case. The typical county tax rate is 17 or 18 percent of a full tax bill in Asbury Park, he said, but the county tax bill is spread throughout the entire county, not on a town-by-town basis. The discrepancy between a typical tax bill and the five-percent paid for by PILOT participants will be made up by all of the county’s property taxpayers.

The redevelopment should eventually reduce property taxes for typical city residents, Hanley said.

Moor also asked what would happen if the school district was weaned off of state aid, as there may be changes to the Abbot district funding schedule from a new state Supreme Court..

“It’s a policy call,” Reidy said. “Whatever is going to happen with [Abbot funding], whatever the state is going to do, they’re going to do. It’s going to happen whether we do this or don’t do this.”

If the city did not approve the finance program and the state decided to reduce funding, taxes would still increase, Reidy said.

“The benefit here is that we develop a part of our city that has remained un-developed, and we bring revenue to the entire city as a result,” he said.

Also, the governing body will be able to send portions of the PILOT to the school if it chooses to, he said, adding that this “would be a community decision.”

Moor asked who is paying for the bond counsel involved in this project. Asbury Partners is paying for bond counsel, Reidy said.

Before leaving the microphone, Moor noted that state agencies can sometimes falter when approving development plans.

“The state has made some blunders,” he said. “Xanadu, the Revel Casino — hundreds of millions of dollars’ worth of tax credits, and they’re going to go into bankruptcy. Hopefully, they did a better job of reviewing this.”

Another city council candidate, Joe Woerner, asked how iStar is benefiting from the plan.

“The developer has a lot of money invested in the waterfront already,” Scotland said, “and the ability to commence vertical construction is really tied to the infrastructure. Infrastructure has become a noose around the neck of every effort” to redevelop.

Also, the arbitration agreement from Judge Politan established a timeline for iStar to develop the waterfront.

“It wasn’t only about collaboration, but also a direction to Asbury Partners and iStar to proceed with development,” Scotland said. “We’ve done our part in working collaboratively to put something in place, and they in turn have done what they were supposed to do.”

Woerner said he was worried other residents will be “subsidizing this development somewhere.”

“It feels to me that of the new tax money coming out of waterfront redevelopment area, none of it will be going to the school system, so we are subsidizing the waterfront redevelopment from future school taxes,” he said.

City officials said this was not the case because the redevelopment projects in the waterfront likely will not bring in a substantial number of new school children. Also, the city can contribute a portion of the PILOT to the school in the future if necessary, he said. The school will continue to benefit from the same taxpayers who have already been paying for its operations.

Woerner also said city planners had told him residential development does not offer much of a benefit for tax purposes anyway, because residential properties bring in people who use many of the city’s services, while commercial or industrial properties do not.

Reidy reiterated that the plan will generate tens of millions of tax dollars for the city in the long run, in an area that otherwise may not be developed any time soon.

Also, this residential development will not drain resources by bringing in four-child families, as post-World War II development in many areas did.

“The money coming from this agreement will absolutely put a surplus back into the city,” he said. “It won’t be a wash. It’ll be a profit.”

Woerner also asked how the number of new units in the redevelopment area had been reduced from 3,164 to 2,200, as such a change usually requires an amendment to the waterfront redevelopment agreement.

“It’s not set in stone,” Reidy said.

The number was reached when iStar went through the redevelopment area, block by block, and determined what kind of construction the current housing market would support. They could change their approach again and revert to erecting higher buildings, but for now, the market seems to be better-suited to smaller developments, Reidy said. At Vive, for example, 96 units are permitted, but iStar decided to build only 28.

Woerner said iStar was wise to reduce the amount of residential units it will bring in. He then said he was still concerned about the fact that new homeowners will not pay into the school tax coffers for the duration of the PILOT program.

City council candidate Duanne Small asked how many PILOT programs exist in the city.

The city has PILOT agreements with Asbury Towers, the Springwood Center, and two or three downtown properties, Reidy said. He estimated the city is involved with eight or nine PILOT agreements currently.

“That’s eight or nine PILOT programs where taxes aren’t going to the schools,” Small said. “That money is going to have to be made up somewhere. We can’t sit here and play games … The most important asset we have in this community is our children and we should be educating them.”

Allowing new residents not to contribute to school tax coffers “should be off the table,” he said.

Small also asked why there was not a clause in the agreement stating that developers had to use local labor and locally bought materials.

“It’s on paper that iStar will make the best efforts possible to get people jobs,” Reidy said.

“You say one of the reasons we’re doing this is because it’s going to bring jobs to the community,” Small said.

He then noted that some infrastructure work had already begun in the waterfront, and asked how it would be funded if the funding plan did not go through.

“The developer could decide not to continue,” Scotland said.

Small also asked how many of the new units would be designated as affordable housing units.

No affordable housing units are required by law in this plan, Reidy said. Instead, the developer is permitted to make a payment instead of creating affordable housing units. Much of money spent on improving the city on the West Side has come from $2 million in payments the city received from that fund, Reidy said.

“One of the biggest issues you talk about is a lack of unity,” Small said. “Don’t you think that’s going to create division in the community, with one side here and one side there?”

Right now, the city’s goal is to get the program off the ground, Scotland said. It is conceivable that at a later date, the city could place affordable or workforce housing in the waterfront.

City resident Maureen Nevins asked if there was a deadline for the developer to build the infrastructure. There is no deadline, Reidy responded, and progress will be driven by the housing market and the sale of units in the waterfront area.

Werner Baumgartner asked which exact lots and blocks were subject to the agreement.

The properties are identified in the ordinance, Scotland said, although some parcels of land were excluded because the infrastructure for those projects was already built.

Baumgartner asked for details on the 30-year financing term for the special assessment. The agreement includes a 30-year period so that bonds can be amortized over a sufficient period of time, Scotland said.

Baumgartner pointed out that the city’s 30-year redevelopment plan with Asbury Partners was first inked 10 years ago, meaning it will expire in 20 years. If the agreement with Asbury Partners is not renewed, the special assessment and PILOT agreement could outlive the waterfront redevelopment plan by 10 years.

The city will need to make “substantial amendments to the redevelopment plan,” Scotland said, “which, in the best case, will extend the existence of the duration of the plan. Also, some of these projects in the process of the development will trigger agreements independent of the redevelopment plan.”

City resident Bess McCarthy asked how the city will ensure that development actually happens, as prior developers have stopped projects halfway.

Asbury Partners is obligated to start a new project as soon as 50 percent of the first project is done, Deputy Mayor John G. Loffredo said.

Also, the infrastructure improvement doesn’t only support the waterfront, iStar’s vice president of land, Brian Cheripka, said. It also supports the central business district and the West Side.

Gerry Scarano once again approached the microphone and implored the city to decrease the plan to 10 years and to ensure local workers will be hired.

“There needs to be a catalytic event and this is that,” Scotland responded. “This governing body is being asked to do something to move a program along. That’s what this program represents. We have no reason to believe it won’t work.”

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