Mayor: Save 50K on garage refinancing or City must begin layoffs

From the Office of the Mayor:

Hoboken, NJ – Friday, October 14th, 2011

In a memo to the City Council, Mayor Dawn Zimmer provides an update on the sale of Hoboken University Medical Center. The full text of the memo is included below.

October 14, 2011
Dear Council Members,
Tomorrow, you will be asked to approve a Parking Agreement relating to the sale of Hoboken University Medical Center, and on Wednesday you will be voting on a second reading of a refinance of the Midtown Garage bond.
It is important that every City Council Member fully understand the ramifications of these matters for our City, its residents and its employees. If the Parking Agreement, requiring 5 votes, and the bond refinance, requiring 6 votes, are not passed, then unfortunately the City will be forced to begin implementing layoffs immediately.
Yesterday we advised the Police Chief, Fire Chief and Public Safety union leaders that the City will be forced to do at least a 10 percent cut across the board for all employees, including Public Safety, if the Council does not approve the refinancing of the Midtown garage bond or we cannot get favorable changes to the agreement that address the bond issue.
We have requested changes to the Parking Agreement that would protect the City from the consequences of a failure to refinance the Garage bond, but do not know whether it will be possible to have those revisions incorporated into the final Agreement.
Corporation Counsel emailed the revised parking agreement yesterday that was sent to HUMC Holdco. Unfortunately we will not be able to get their final comments on the agreement until later today.
Here are the straight facts:
The City Council has been asked to refinance the Midtown garage from a non-taxable to a taxable bond. Given the favorable interest rates currently available, this refinance will save the City of Hoboken an estimated $50,000.
It would, therefore, be an appropriate and responsible action for the City to pass this bond completely independent of the Hospital transaction.
The bond must be refinanced from tax exempt to taxable because the tax exempt status of the bonds will no longer be appropriate under the proposed parking Agreement with Holdco due to private use. A failure to refinance could cause the City to be in default under the existing tax covenants associated with the bond (including certain Internal Revenue Code regulations) and, as a result, the City would be liable for significant damages to the bondholders due to the change in tax status.
While I fully anticipate that the City Council will support our City and its residents by supporting the refinance of the Garage Bond, we have requested changes to the parking agreement that would protect the City’s interests in the event we are unable to refinance. However if the City Council does not approve the refinancing and our proposed changes are not agreed to, we will have to pay down the bond debt with a $10 million payment within the next 90 days in order to avoid default.
As previously stated, there is no need for this consequence to occur as the refinance of the garage bond will actually save the City money and would be an advisable course even if it were not a part of the Hospital transaction.
The revised agreement, designed to deal with the tax issue and possibility that no refinancing of the garage will be approved, would also require many HUMC employees to park in City garages on Hudson Street where we do not have any bonding issues.
The alternative, the closing of the Hospital and immediate liability under the $52 million Hospital bond, would be even more disastrous for our City and its finances and is, quite simply, not an option.
Three million dollars in transportation initiatives have already been removed from this year’s budget, and the City would be forced by the Council’s refusal to pass a bond refinance to do another round of major layoffs and find $7 million more in the 2012 budget.
None of this is necessary, however, since the bond refinance, which would resolve all of these issues, is not only costless but actually saves the City $50,000 due to the favorable interest rates available.
The bottom line:
Saving our Hospital is an enormous achievement for which all of our elected officials deserve their share of credit. We must move ahead, save our hospital, get the City off of its $52 million bond guaranty, and ensure that we maintain financing reflecting the appropriate tax status of the Garage. We must put politics aside, work together and move our City ahead.
The attached memo from bond counsel provides more background on all of the bond issues related to the Midtown garage.
Please vote for the parking agreement and vote for the refinancing of the midtown garage. These two votes will protect the financial interests of our City for years and years to come.
The final parking agreement will be sent to the Council as soon as possible. In the meantime, I am asking Corporation Counsel to resend the revised version of the agreement again, as we hope that it represents the final agreement.
If any Council Member has any questions whatsoever as to this matter or requires further information, please call me immediately or contact Director Sacs or Corporation Counsel so that your questions and concerns are fully addressed and you have all the information required to make an informed decision tomorrow.
Best regards,
Mayor Zimmer

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