Special City Council Meeting Recap 6/13/2010:
This was handed out last night as a primer to the public by the Administration as to why the bond issue should be passed:
ANSWERS TO QUESTIONS ABOUT THE PROPOSED GARAGE BOND AUTHORIZATION
WHY DO WE NEED THIS BOND AUTHORIZATION NOW?
Due to a number of factors, the City is aware that the sale of the Municipal Garage may not close as scheduled on August 13th. The City needs to be prepared for that contingency, or it faces enormous risks which could require another substantial tax increase. Fortunately, avoiding that risk is easy and costless for the City.
When people are considering buying a new house or condo, they often get "pre-approved" for a loan that they will only use if they buy something. The "pre-approval" is costless but. facilitates a potential future transaction. That is essentially what the City is doing here. This Bond authorization ensures that the City will be in a position to borrow the money it needs to refinance what is in effect a "home equity loan" on the Garage as cheaply as possible. We will need to do that, if the sale of the Garage does not take place as scheduled on August is"
CAN THIS BOND BE USED TO RELOCATE THE GARAGE?
No. The Bond will permit the Garage to stay where it is if the sale to the developer, Hekemian doesn't close on August 13th. This is a real possibility because the real estate market has declined. Hekemian has requested changing the agreed terms to delay the closing a year, as well as to significantly reduce the value of the transaction to the City.
If the Bond is not passed it becomes far more likely that the Garage will have to be relocated. It also makes negotiations with Hekemian more difficult, because they will know that we will have few. options available to us.
HOW MUCH ARE WE BORROWING ON THIS BOND NOW?
Nothing. We are not borrowing anything unless and until we need it. All we are doing is authorizing a Bond, making it possible to borrow if it becomes necessary.
WHEN WILL WE BORROW ON THIS BOND?
Perhaps never. If the sale of the Garage closes on schedule on August 13, no borrowing will occur. The Bond will be used to refinance the existing debt on the Garage ONLY if the sale to Hekemian fails to close on August 13th.
HOW MUCH DOES AUTHORIZING THIS BOND COST THE CITY?
Nothing. We are not borrowing anything at this time, or perhaps at all. The Bond provides a free insurance policy in case the sale of the Garage is delayed or canceled, a contingency that we know could occur.
ARE THERE ANY REASONS TO WAIT UNTIL LATER?
NO. Authorizing the Bond prior to June 22nd costs the City NOTHING and failing to do so exposes the City and its taxpayers to substantial cost and unnecessary risk.
HOW MUCH WILL IT COST HOBOKEN TO WAIT UNTIL LATER?
The interest on the Bond would be approximately $20,000 per month, far lower than the existing cost which has reached as high as $100,000 per month.
If we wait until after the HCIA deadline of June 22nd , but pass the Bond authorization before July i-, the annual unnecessary cost to the City would be approximately $600,000. This is because our borrowing costs will be far higher. We will have lost the opportunity to get the best possible rate through the HCIA pool.
If we wait until after June 30th, our costs could be higher still or we may not be able to borrow at all, because our existing debt could be in default. If the City cannot borrow we will either lose the Garage or have to raise taxes significantly to payoff the $16 million.
WHY ELSE IS THE BOND NEEDED?
Our existing debt on the Garage matures on July 1st . The sale of the Garage isn't scheduled to close until 1 and 1/2 months later on August 13th". This means the loan will have to be extend d to avoid a default by the City. Capital One, the lender on the existing debt, has insisted that we authorize this bond as a condition of allowing us to wait until after the Garage is sold on August 13th to payoff the loan. If the Garage is not sold, the Bond will give us the money that we need to refinance the existing loan as cheaply as possible.
WHAT HAPPENS IF WE DON'T PASS THE BOND?
If the Bond is not passed and the existing loan is therefore not extended, then Hoboken will owe Capital One approximately $16 million on July 1st. We will not have the money to pay, because the sale to Hekemian will not have closed. The resulting default could cost the City its rights to the Garage, and damage Hoboken's credit rating for years to come, costing taxpayers millions of dollars. ◦
