Meanwhile, at the July 21 council meeting, council turned its focus to the financial aspect of redevelopment and whether or not it should engage an investment banking firm.
Ron Rumack and Steve Manzari of the redevelopment finance committee first summarized the process of tax increment financing as one option the committee was looking at favorably.##M:[more]##
Tax increment financing features the issuance of bonds to private and institutional investors that will finance redevelopment. In the worst-case scenario, that the bonds cannot be repaid due to a short-fall in TIF revenues, officials say, the investors will not be permitted to look to West Windsor taxpayers for repayment. The investors will fully bear the risk of loss if TIF revenues are insufficient to repay the bonds.
Rumack told the council that the committee recently heard from a San Francisco-based investment banking firm, Stone and Youngberg. Rumack said the firm’s representatives told the committee that they were willing to offer free advice on the TIF process and on other financial aspects relating to the redevelopment area.
“Of course, nothing is free,” he pointed out. Rumack, who is an investment banker by profession, said usually when firms engage in free advice, the expectation is that they would get bonds issued to them when it comes time for the township to move forward.
He did say, though, that by engaging an investment banker, the firm would take care of a lot of the background work, like doing a credit analysis of the project itself, conducting a feasibility study, doing a market analysis, and they would work with other entities like NJ Transit and the state Department of Transportation in helping to make decisions that would be financially feasible in the redevelopment area. He said they would also assist in securing necessary approvals for the issuance of bonds to pay for amenities like parking garages and road infrastructure improvements.
When selecting a firm, the township should get the history of the firm’s experience, whether it has done a lot of recent transactions, whether it has experience with TIF, who the firm hires as underwriters, and what the firm’s perspectives are on West Windsor’s own redevelopment issues.
Rumack said that it was a unanimous decision by the members of the redevelopment finance committee to suggest that the council engage an investment banking firm as soon into the process as it can. “What they’re really providing is some guidance and advice based on their experience in seeing other townships throughout the United States, and how they go about creating an financing a redevelopment project,” he said.
Despite this, some council members were still wary of relying on an investment banking firm as the township’s only ally in studying the financial aspect of the redevelopment project, and suggested also bringing in a financial consultant.
But Rumack explained: “Effectively, an investment banking firm is going to act as a financial adviser. The difference between a financial adviser and an investment banking firm is that a financial adviser looks to get paid directly — hourly, for example — while an investment banking firm looks to get paid for being the underwriter for bonds.”
The primary reason for engaging the investment banking firm at this stage is for the free advice, Rumack says. “While we don’t pay for it outright, ultimately an investment banking firm is a for-profit entity, and they expect to receive compensation, which would come out of bond proceeds as a normal and customary cost of issuance.”
He says this would be something that ultimately would be negotiated by council.
Council President Charles Morgan said he feels it is important to have an investment banking firm “at the table at the beginning so they can have an impact on the process” in writing a redevelopment plan, because they would be able to help in determining which elements would be economically feasible and beneficial to West Windsor.
“I see the interests of the investment banker being aligned closely with West Windsor’s,” he said. “They want to sell the bonds because they want to get paid.” Therefore, they would be going through all the assumptions in the plan in much detail, he added.
At this point, council should go through the process of developing a request for proposals and submitting it to several investment banking firms, Rumack suggested.
“There can be a choice made to go forward with tax increment financing, but that doesn’t preclude the township from using other financing techniques,” Rumack reiterated. “I don’t think anybody’s made the decision that tax increment financing is the way to go.”
Bond counsel Ed McManimon advised the council that it should look at the pros and cons of using TIF before jumping head first right into it, and that it was a fairly new idea in New Jersey.
He also that while he had some skepticism about whether investment banking firms will be interested in giving the township free advice on whether to proceed with a TIF when it is not clear whether there will be a deal down the road, they would be a great asset to the township. “They’re generally willing to spend their time and energy and some capital to assist in structuring the project and whatever financing options there are. Then, if there is going to be financing, they’re in the position to be the favored entity to do the financing,” he said.
He said some firms may not want to wait to go through the process for years with the risk that when it comes time for the township to make a decision on the financing option it would use, that it instead opt to go with something like a general obligation bond, which is put up for public sale. If this is the case, McManimon says that the township will have other options and other alternatives and could proceed with other financial advisers.
The administration will now come back with a recommendation for the process, which could possibly include a resolution asking the mayor to start an RFP process to find an investment banking firm. Business Administrator Chris Marion told the council he and the township staff should review the tapes from the finance committee meetings and review the basis for the recommendation.
Mayor Shing-Fu Hsueh, in a statement, said he wanted to make it “very clear, that under no circumstances will I support the train station redevelopment” if certain conditions are not met. He said the redevelopment project has to be tax positive, without any financial burden borne by West Windsor taxpayers. He also stated that all state and county agencies would have to commit to the support of the project, that communities around the redevelopment area would be preserved, that the project will have to be phased, and that the priorities should be the traffic improvements, main street, and parking.
Regarding TIF, Councilwoman Linda Geevers said she felt “the TIF may not be as viable due to market changes. There are a lot of risks involved for the bond holders that weren’t there a year ago.”
She said it was important to do a thorough cost benefit analysis. “We know there is a downturn in the commercial business cycle — just look at all the leasing signs along Alexander Road and elsewhere,” she said. “Risk isn’t something you embrace in hard economic times.”
Attorney Spat. During the discussion, tension was displayed when Councilwoman Linda Geevers began asking McManimon — who was one of the candidates interviewed for the redevelopment attorney position — whether he thought his position as the township’s bond counsel would be a conflict of interest in doing other “consulting work” for the township with regard to redevelopment. McManimon stated he didn’t think it would be, and that it would be a benefit, but Councilman Will Anklowitz jumped in, saying he thought it clearly was.
Then he said to Geevers, “If you’re going to try to get sly with me, I’m going to call you out on it.”
Morgan ended the conversation, saying the discussion of hiring a redevelopment attorney would come further down the road. After the meeting, Geevers said it was “an enigma as to why we’re not using Ed McManimon to work through financial matters in redevelopment. We should be taking advantage of his vast experience and knowledge in such vast projects in New Jersey. We shouldn’t be walking away from expertise.”
