Can A New City Yard Avoid Bonding?

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Can A New City Yard Avoid Bonding?

July 02, 2013 - 21:34

In the June 27, 2013 issue of the Westchester Guardian

At its meeting on June 18, 2013, the New Rochelle City Council listened to Dan Marsh, Director of the National Development Council (NDC), make a presentation on how the City could use its services as a not-for-profit corporation to finance construction of the new City Yard and lease it back to the City for a guaranteed fee. Under the arrangement, the New Rochelle Local Development Corporation (LDC) would float revenue bonds to raise money for NDC to construct the City Yard, the City would make lease payments to NDC for the construction and use of the new City Yard, and the NDC would pay off the bonds.
Marsh said that the NDC would have to acquire title to the Beechwood Avenue site. The City would determine a guaranteed price and the land could be transferred to the LDC. The NDC would sublease the land from the LDC. The New Rochelle Industrial Development Agency (IDA) would participate so that the Mortgage Recording Tax could be avoided, but the IDA is not longer allowed to provide financing for not-for-profit corporations. The LDC does that.
Marsh said that the NDC would work with design consultants to initiate project bids in advance of the starting date of construction. It would seek to obtain the "best possible construction price.” The buildings and property will revert to the City of New Rochelle when the bonds are retired. If any money is saved from the agreed upon price, it would revert back to the City.
While the project could be completed with general obligations bonds, the City Manager, Chuck Strome, has asked for consideration of this other option. Mayor Noam Bramson said it seems like a complicated financing process, but he felt that this process ensured certainty and predictability "because of the guaranteed price" on the lease.
Councilwoman Shari Rackman wanted to know how a design change would be handled, if there were "a glitch" in the process and the design had to be changed. Marsh said it would depend on the nature of the change. Strome added the City will have a guaranteed price and the City Council must decide if it is worth the risk.
Councilman Al Tarantino asked about the time frame for repaying the bonds and was told 20-30 years. The assumption would be that the City would operate and maintain the new City Yard. Tarantino asked what the costs would be to maintain the new buildings, adding "the City Manager says we don't maintain buildings." Strome answered the City would have to maintain the buildings. Tarantino then wanted to know how NDC warrantees the buildings. He was told construction defects are guaranteed for up to five years. No guarantees are given for normal wear and tear.
Councilman Lou Trangucci asked about the bonded debt and how it would be shown in the City's financial reports. Marsh suggested this debt would appear as a "lease payment" in the budget. Trangucci questioned whether the lease payment would be looked at as a long-term financial obligation subject to budget approval. If the Council decides to go with leasing, a new vote would be needed to rescind the bonding. Mayor Bramson noted that the New Roc garage was financed using lease payments. However, Trangucci added this debt was refinanced later as general obligation bonds to control costs.
Councilman Barry Fertel asked whether five votes were needed to rescind the already approved bonds. He was told that rescission and the new lease agreement using the LDC and NDC needed only four votes to pass. He had concerns about whether local contractors would be used and was told that they will be used to the extent possible and available. Trangucci asked about the contamination on the site and Marsh answered that he could not give an answer, because NDC does not know what contamination is on the site. Bramson closed the discussion by saying this project proposal will be revisited in the coming months.

There is 1 Comment

New Rochelle should sell the Beechwood property to NDC, to get rid of that property, and recoup its costs.

City Yard should remain at its present location and should be rebuilt there, and paid for with bonds. The only reasonable usage of government bonding is the building of infrastructure.

Ultimately, wherever it is located, and whatever the costs, City Yard will be paid for with local taxes, unless NYS or the federal government subsidize it.

So-called non-profit corporations often do make profits, or at least overly-pay their executives, which also needlessly increases costs of providing public services.

Taxes will be even higher if New Rochelle has to pay for NDC's profits or NDC's executive's salaries and perks, rather then NR benefitting from the current low interest rates on bonding while NR maintains complete control of City Yard.

In general, privatization of government services is a bad idea, as it only raises costs to pay for profits. It makes more sense, and cost less dollars, to have the government provide public services than to subsidize a business's profits. Much of the increase in government costs over the last few decades is due to the foolishness of privatization of government services.