NJ will try 'lease-buyback' deals

From: Trenton Times, NJ - Mar 16, 2005

By KRYSTAL KNAPP
Staff Writer

For sale: 117-acre school for the deaf in a bucolic campus setting in Ewing. Seller: state Treasury Department. Terms of sale: Buyer will renovate buildings; school will remain open; property will revert back to state after 36 years of lease payments.

It's called a "lease-buyback," and it's the state's newest scheme to help plug the 2005-06 fiscal year budget gap by putting $500 million worth of property up for sale.

Officials hope to raise the money by selling state land, buildings, vehicles and equipment. While some assets the state no longer uses or needs will be sold outright, other properties still used could be sold to investors and then leased back for years by the state.

"We're in the process of reaching out to all state agencies to discuss which properties could potentially be part of a lease-buyback arrangement," said Treasury spokesman Tom Vincz. "It's a way to make improvements to facilities, hold on to them and provide financial relief to the state."

The guinea pig for this fiscal experiment is the Marie H. Katzenbach School for the Deaf on Sullivan Way in Ewing, the only statewide residential school for the deaf. While the state has sold and leased back equipment in the past, the move never has been tried with land - until now.

Under the plan, Katzenbach would continue to occupy the property but a third party would buy it and the state would then lease it, state officials said. The College of New Jersey probably would run the school.

The buyer, most likely a foreign investor, would renovate the campus and recoup the investment plus interest in lease payments over 36 years. At the end of the lease period, ownership of the property would revert to the state.

"It's a win-win situation," said Ed Jenkins, director of the state Treasury's division of Property Management and Construction. "At the end of the day, the school gets the partnership, the buildings revert back to the state and the state gets the money to fill the budget hole."

-- -- --

Speaking last week to a committee comprised of parents, school alumni, community members and officials at the Katzenbach School, Jenkins said if the budget passes unchanged, acting Gov. Richard J. Codey will be the first governor in 51 years to decrease the budget from the previous year.

Meanwhile, the Treasury Department has the daunting task of coming up with $500 million worth of land to sell.

"The state needs revenue, but it does not want to cut people or programs," he said. "The No. 1 way to make money is through the sale of assets such as buildings and land."

State officials said the lease-buyback arrangement has been used in several other states to help balance the budget.

School boards in New Jersey, Willingboro for one, have resorted to the measure the last several years when facing budget shortfalls.

Experts who manage school district lease-buyback programs have compared them to a home equity loan: The district has an asset, such as books, which is worth money. It gets a lump sum of money up front, secured by the books, then pays it back plus interest and eventually gets the books back.

The College of New Jersey considered taking over the governance of Katzenbach last year but decided it could not afford an estimated $73 million in renovations.

College President R. Barbara Gitenstein met with representatives of the state Department of Education and the Treasury in January to discuss ways to make the plan work, despite the fact that the state does not have the money for the renovations either. At that meeting officials came up with the lease-buyback strategy.

"We all thought this was a great idea," Jenkins said.

The state wants to sell Katzenbach by June 30, 2006. The engineering firm STV has been contracted to assess the cost of renovations. The property also will be appraised.

If the plan fails, the state will move to plan B, which is to sell more than 20 percent of the Katzenbach property outright.

"The east portion could be sold without interfering with the school," Jenkins said. "It would be sold to either a developer or Ewing Township, which would have it developed."

Trees and possibly a school building that now houses the Lower School for elementary students might need to be torn down as part of the deal. Otherwise the new development would wrap around the Lower School. "We'll make sure it won't be a cigar parlor," Jenkins said. "It will be housing or some other agreeable use."

Ewing officials, aware of the potential sale, voted last week to have the planning board consider changing the zoning at the school from residential to office park.

-- -- --

Katzenbach parents, staff and alumni are upset by both plans, fearing they spell the eventual demise of the school. They also expressed anger that they were the last ones to know about the proposals.

"For many years the department of education has made decisions about what they think is best for the school without our input," said Phil Moos. "We all pay taxes, but we had no voice in this. There were no meetings or opportunities for us to give feedback on the proposal."

The deterioration of the buildings on campus did not happen overnight but was a result of many years of state neglect, parent Kim Arrigo said.

"It's a piece of land to you," she said. "It is home to the rest of us."

If part of the land is sold under plan B, parents worry about the safety of the children on campus. They also said tearing down the trees would destroy the surrounding environment.

The bigger questions plaguing parents were practical ones, namely, how will the state pay the rent if it is struggling?

"The sale will fill the budget hole this year, but what about next year?" said parent Sharon DeVito. "How will the state guarantee that the school will be able to stay open under the new ownership and what is to protect the state from losing the property if it can't pay the rent?"

Jenkins said the school's continued existence would be a condition of the sale. He said the state would pay the rent out of its rent account. "I know it sounds like we are robbing Peter to pay Paul, but we have a separate rent roll of $150 million to $160 million," Jenkins said. "We're trying to think out of the box."

-- -- --

The Katzenbach School is not the only property that will be sold in the Ewing area, Jenkins said.

Part of the Trenton Psychiatric Hospital property just across the border in Trenton probably will be sold, as will Ewing Residential and parts of the Jones Farm and possibly, though less likely, the Knights Farm, which were both preserved as farmland several years ago.

Though Jones Farm is preserved, the farming there attracts geese that could endanger flights in and out of nearby Trenton-Mercer Airport. About 69 acres cannot be farmed under Federal Aviation Administration regulations. Jenkins said the land possibly could be sold for warehouses or some other development.

"Jones Farm will be the hardest sell," he said.

Copyright 2005 NJ.com. All Rights Reserved.