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February 19 Town Council meeting

Prism, designated downtown redeveloper, major topic at Feb. 19 council meeting. Prism delinquent on property taxes, and 2011 financial statements show significant financial challenges.

The financial strength and contract compliance of Prism, the designated downtown redeveloper, was again a major topic of discussion at the February 19, 2013, town council meeting.

The company is again delinquent in its property taxes for at least the fourth consecutive quarter – late on more than $200,000 of its February 1 obligation. The 2006 Redevelopment Agreement allows for default based on failure to pay delinquent property taxes.

In addition, the council discussed for the first time the audited 2011-2010 financial statements of Prism Green Associates IV LLC, the redevelopment entity whose owners are Greenfield Prism IV LLC and Prism West Orange Development LLC. The statements were provided last week to the township in response to a request for information last October. Although the original demand letter required a 10-day response, and although Prism has still not provided other requested information, the township administration and other four council members are reluctant to push for additional notice of default letters to Prism to demand performance under the Agreement.

Last night, I unsuccessfully urged other council members to support sending letters of default to Prism (as the administration has done twice before to obtain compliance). The other council members appear satisfied to wait to see if Prism is able to obtain a required $50 million construction loan. I argued that it appears that Prism isn’t taking concrete steps to obtain the financing or to comply with the Agreement. I pointed out that, if it was the case that Prism is unable to obtain the financing and lacked the financial strength to complete the project, the township is better off defaulting Prism and beginning the process to find another redeveloper.

The financial statements show a company with significant financial challenges. Some of the following information was discussed at the council meeting:

- Prism was in default on repayment of the mortgage on its property at 217 Main Street, where CVS is located, with a balance of $3.3 million as of year-end 2011. Prism had an agreement to sell the property for $5.2 million that the unidentified buyer terminated. Environmental remediation of the property is part of the discussions to potentially reinstate the sale agreement. (Prism purchased the property in 2007 for $7 million, according to deed documentation the company previously provided.)

- Prism’s three mortgages on its redevelopment properties were due in 2012 and required extensions or alternate financing.

- One of the mortgages, on the Barton Press property, went into foreclosure and was settled at the end of 2012 year with Prism acquiring the property outright. The footnotes indicate that Prism “executed a DPO (Discounted Pay-Off) … in the amount of $1.2 million.” This indicates that Prism paid less than the outstanding loan balance to settle the foreclosure proceeding. In 2007, Prism assumed the mortgage with a $5.36 million balance as part of an $11.75 million purchase price; it’s unclear what the loan balance was at the time of settlement.

- Prism had negative cash flow of $140,801 in 2011, meaning it paid out more in cash than it took in during the year. While this situation cannot continue indefinitely, because theoretically the company will eventually run out of cash, it’s not unusual for a development company that is not yet generating significant revenue from the planned project.

- Investors in the company contributed capital of $2.1 million in 2011 and $3.7 million in 2010. These contributions provided substantial cash to the company.

- The financial statement, while audited, did not receive an unqualified opinion from its auditor because it doesn’t reflect U.S. Generally Accepted Accounting Principles (GAAP), a method familiar to many people because it’s required of companies that publicly trade in this country. Prism uses the accrual method for federal income taxes, requiring estimates in some situations. This method does not use “valuation allowances” required by GAAP to account for the potential that deferred taxes, which are carried as an asset, may not be realized in the future if sufficient taxable income is not generated. The result is that current assets may be valued higher than they would under GAAP.

- The statements don’t mention the two notice of default letters sent by the administration last year, which resulted in Prism promptly paying approximately $300,000 in delinquent property taxes and an escrow account for the town’s redevelopment expenses.

- Prism paid loan interest of $920,510 in 2011 and nearly $1.07 million in 2010.

- Prism paid itself management and development fees of approximately $384,000 in 2011 and nearly $932,000 in 2010.

- As of year-end 2011, one of the investors in Prism had a $475,625 capital contribution pending.

In other council action:

- The council passed, 4-1, a $3,000 contract to Goose Control Technology of NJ to addle goose eggs at three town locations to keep the resident Canadian goose population down. I voted against this because we could do this with volunteers, as several other towns in Essex County do. I also expressed concern that the technician last year did not show up at least twice when scheduled.

- The township’s 2013 budget documents are posted online here http://bit.ly/Xq15xl.

I’m a West Orange Township councilman since 2010 and can be reached atjkrakoviak@westorange.org. A former financial journalist, I am a business communications consultant in my spare time.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

wohopeful February 22, 2013 at 09:39 PM
What we have here is a developer in serious financial trouble, unable and unwilling to pay their financial obligations. Habitually late on something as simple as their property tax payments which they are provided very advanced notice for. This developer only responds when they are threatened with legal recourse, case in point that Wells Fargo was only able to collect the massive unpaid mortgage debt after they began foreclosure proceedings against Prism. Prism has state that they do not now and never had the financing in place to proceed with this project. It is clear that what we have here is a developer in dire finacial straits that will just bring the township and the hard working honest taxpyaer down. It is time for the council and administration to wake up and take notice.
Steven Serebrenik February 22, 2013 at 09:45 PM
If it's not a big deal, why don't you chip in with the council and pay for it wiseguy?
Gary Englert February 22, 2013 at 10:48 PM
Steve Serebrenik: Those of us who actually volunteer our time and energies to the community (which I've been doing for decades), generally pick a niche and stick with it; addling goose eggs isn't mine but, you just might be the man for the job. If you think spending $3,000 is such a big deal, you can devote your time and energies by doing the job yourself and making the expenditure a moot point. It isn't a big deal but, rendering athletic fields and parks unusable because they are covered in the feces deposited by some fairly good sized animals most certainly would be. .
Gary Englert February 22, 2013 at 10:49 PM
^ Nonsense.
Paul P February 22, 2013 at 10:55 PM
Here's a list of Prism Properties with available space to rent. Looks like their cash flow problem is from empty office space. http://listings.prismpartners.net/
RB February 22, 2013 at 11:49 PM
Paul P: Thanks for that link. While there, I clicked over to the WO Redevel project and found http://www.prismpartners.net/proj_edisonvillage.html# "This complicated redevelopment includes more than $40 million in non-recourse Redevelopment Area Bonds. These bonds are tied to a payment in lieu of taxes (PILOT) agreement. This arrangement provides substantial benefits to both the Township as well as individual homeowners whose property taxes will be substantially reduced for a 25 year period." The $6.3MM bonds are General Obligation bonds, no? What are these $40MM RABs then? I thought the 30-year tax abatement was for the rental units; why are we giving individual homeowners (if we ever actually see any) substantially reduced taxes for the next 25 years? From the look of the master siteplan, there will be quite a large number of children flooding into the local schools - who's paying for that? The existing beleaguered homeowners? If this is the plan, I can see property taxes doubling again in the next decade just as they did in the 1990s.
Joe Krakoviak February 23, 2013 at 02:43 AM
If you'd like to view video of any town council meeting going back a few years, please check out West Orange Grassroots http://westorangegrassroots.org/. Many of the council meeting video posts have summaries that are searchable. You should be able to find what you're looking for that way.
Tom February 23, 2013 at 03:01 AM
Gary Your posts are getting more desperate each time. It is getting so old
Bert Peronilla February 23, 2013 at 11:54 AM
Scott: Thank you for your response. How is the revenue to the Township (PILOT) calculated? Is it a fixed amount per year, or a function of (rentals, occupancy, or some other factor?) Since Prism is now considering selling units in addition to rentals, will this affect the formula used for PILOT or no effect at all? If this has an effect, then the anticipated revenue to the Township will have to be revisited.
wohopeful February 23, 2013 at 02:18 PM
Taxes in West Orange are already at an unimaginable high as a result of McKeon, Codey, Parisy and the failed WOBOE. WO already has a failed educational system, high crime, high taxes, failed redevelopment...the future is clear WO will be the next Irviingtoon/Orange/East Orange.
Steven Serebrenik February 23, 2013 at 02:55 PM
Dear Gary, I guess the high taxes in west Orange in good enough for you....PLUS...Why wouldn't the people who USE those fields volunteer...I know if it was something I used, this "ussue" would never have become an issue. I truly respect your civic service action and feelings BUT don't you think the people who use these fields should show some of their own civic service and remove this dreaded goose doody themselves. Instead of insulting me, maybe you can suggest my thoughts to those so who the facilities....I DONT! I have paid school taxes for the last 25 years never having sent kids to school so PLEASE don't bother with your counterpoint.
Scott February 23, 2013 at 04:17 PM
Concerned: Frankly, I have no idea how the PILOT is supposed to be calculated. All I know is that Anderton said that there would be a MINIMUM of $650K/yr and that it *is* a function of Prism's reported revenues.
Gary Englert February 23, 2013 at 04:53 PM
Tom: There's nothing "desperate" about my posts, though rpeatedly answering the same questions does get tiresome. I do note that your posts never say anything of substance. RBH Clearly, Prism needs to edit the info on its website as the proposal to issue Redevelopment Area Bonds dates to 2009 and was not even considered by the Township Council; delaying the project to the present day. Again, absent tax abatement conveyed by the PILOT program, nobody would renovate the battery factory as its historic designations and mandatory site remediation means $30 Million more than it will ever be worth must be invested. Without tax abatement, we will be left with a deteriorating eyesore forever. As to any influx of school children, the largest rental property in town is West Mill (opposite St. Barnabas) with 750 units and it doesn't send 30 children to the public schools. Edison Loft will have less than half as many units and all logic and experience suggests a comparable or even lower ratio. Single family, detached housing drives school populations and always has...not condos, townhome or rental properties.
Bert Peronilla February 23, 2013 at 05:00 PM
I viewed the videos of 2/15/2012 on the Redevelopment Meeting with Prism and these are my takes: (1) Upon completion of Phase I, Prism will continue to pay the land property tax as they currently do. Around 24% of this goes to the Township, 60% to BOE and 14% to the county, the 2% to the library, county open space, etc. (2) PILOT means the tax for the building is a negotiated rate which is a percentage of the gross revenue (rentals) of this project; and instead of 24% of this going to the Township, their share will be 60%. It is projected that during the stabilization period (80% occupancy?, I am not sure when stabilization is achieved), the PILOT revenue will be $950,000. The Township share of this will be $950,000 x 60% = $570,000 per year. If rentals (occupancy) = 0, then the PILOT revenue will be 0. (3) It is now clear in my mind that if Prism considers selling some of the units in addition to rentals, this could change the calculation of the PILOT revenue and definitely should be revisited.
Ken February 24, 2013 at 04:34 PM
$3,000 comes to something like 18 cents per household. Get over it.
RB February 24, 2013 at 05:02 PM
Once the PILOT agreement takes effect, I believe that there is a "credit" for the land taxes built in. My recollection (maybe flawed) was that the PILOT is reduced by the amount of the land taxes, f'rinstance if the land tax is $100,000 and the PILOT is $850,000, the Township nets $850,000 (rather than $950,000) and it goes 95%/5%/0% Municipal/County/BOE with the Township making a $10,000 per student payment to the BOE. If the redevelopment area sends any special education students into the district, we could wind up in a revenue hole.
Gary Englert February 24, 2013 at 05:17 PM
Steve Serebrenik: As 80 percent of the nation's population benefit from receiving a public education, if you didn't receive one yourself...or spawn any progeny who did...you are still a party to the inter-generational covenant that supports this enterprise long acknowledge to be toward the common good. The preponderance of doctors who treat you, lawyers who represent you, engineers who build the highways your ride and planes you fly, and scientists who expand the universe as we know it were educated in the public schools...and you benefit from all of that. While you, personally, may not utilize public parks and athletic fields, the idea that those who do should be tasked with maintaining them is similarly flawed. Would you suggest that, never having called for service from the police or fire department, you should be exempt from contributing to their maintenance? The parents of school aged children...who are among the most prolific users of our athletic fields...are generally dual income families who do volunteer in their limited spare time in countless ways. $3,000 is a mere pittance to have professional oversight of an ongoing program...much of which IS accomplished by volunteers...to keep the Township's goose population in check and our fields useable for recreation. Spread out over a $72 Million municipal budget and +/- 18,000 property owners, the expenditure is statistically insignifcant...and saying so isn't insulting you or anyone else.
Gary Englert February 24, 2013 at 06:33 PM
^ Nonsense.
wohopeful February 24, 2013 at 07:21 PM
Yes, Mr. Englert it is nonsense when you feel a compulsion to respond to every post even those where you have nothing to counter the verifiable facts with.
john anthony prignano February 24, 2013 at 07:44 PM
I didn't read anything in Councilman Krakoviak's post about Victor Cirilo. Did the Council formerly ask for his resignation, or at least censure him ? Did the Council issue a vote of no - confidence regarding Mr. Cirilo? Did they ask him to resign from his Council President position? Or did the Council do what I said they would do regarding Mr. Cirilo, which is NOTHING. As a matter of fact, at the annual State of the Township Address, Cirilo and the other Council members were recognized by Mayor Parisi for their service to the community. Mayor Parisi believes it's appropriate to commend people for good work. Doesn't he believe it's appropriate to punish them for bad behavior?
Bert Peronilla February 24, 2013 at 08:03 PM
Further to my post re-videos of Redevelopment Meeting with Prism on 2/15/2012, the following are my comments on the $6.3 million general obligation bond. • Prism will pay back one half of this ($3.15 million) via special assessment to Prism over 30 years with interest. Assuming an interest rate of 1.0% over 30 years, the capital recovery factor (crf) = 0.03875. The annual cashflow to the Township = crf x 3,150,000 = $122,000. Mayor Parisi mentioned that the other half ($3.15 million) is a fair share of the Township for the infrastructure improvements, similar to how such improvements were financed by the Township in Llewellyn Park, etc. Just for argument sake, suppose we would like the Township to also recover this amount so that the Township does not pay for any of the infrastructure improvements, how much is the minimum PILOT revenue just to breakeven over 30 years? • Using the same assumptions above, the minimum PILOT revenue = $122,000/60% = $203,000 (since the Township only gets 60% of the PILOT revenue, the rest goes to BOE, the county, etc.) The projection is PILOT revenue of $950,000 during the stabilization period (assume at 80% occupancy, say 270 units.) $203,000/$950,000 = 21%. 270 x 21% = 58. Therefore, with these assumptions, the Township will at least recover the other $3.15 million when the occupancy is at least 20%.
RB February 24, 2013 at 08:43 PM
@Concerned: I posted earlier but to the wrong thread (it ended up in the one just above this one). The Township actually splits the PILOT 95%/5% with the County getting the 5% and the BOE getting nothing. According to former Councilman Anderton, any school-age children residing in the project will trigger a payment of $10K per student to the BOE out of the Township's 95% share. The average cost of one student is close to $20K/year (I don't know what the marginal cost is) and the cost of educating a single spec-ed kid can be many times that $10K/year.
HMV February 24, 2013 at 09:07 PM
To add 2¢, the bonding for Llewelyn Park (and Ridge Road, for that matter) is not quite the same. The property owners in those areas will repay the entire bond from special assessments on the individual properties (whoever owns them now or into the future). The rest of the town's property tax payers will have zero tax liability going forward.
Bert Peronilla February 24, 2013 at 10:14 PM
RB: I am quoting Mr. Diaz from the 2/15/2012 meeting video. He said that the Township will get 60% of the PILOT revenue. I defer to your information re-95% share if it is later than my 2/15/2012 source. He did not state how the remaining 40% will be split. HMV: I might have missed Mayor Parisi mentioning that Llewellyn Park will repay the bond via special assessment. This makes sense to me.
RB February 24, 2013 at 10:48 PM
Concerned: The Redevelopment Meeting on Feb 15, 2012 was more of a sales talk by Prism than a meeting in the usual sense. I went back to westorangegrassroots.org and found the TC meeting of 3/6/2012 where Sal explained the PILOT. About 45 minutes into Part 3 of 4 (or on youtube: http://youtu.be/e2UsmoQvu-Y?t=3m42s) you can see Sal's explanation of the PILOT split.
Joe Krakoviak February 25, 2013 at 06:00 AM
West Orange Grassroots now has the video of the council meeting posted http://bit.ly/Xvq4Cl, in a downloadable format that's also indexed so that you know where to look in the video for specific issues. The council discussion on Prism starts at the beginning of Video Part 2. You can also watch a flash (non-downloadable and non-indexed) version of the meeting on the town's website. www.westorange.org.
Steven Serebrenik February 25, 2013 at 12:21 PM
Gary, I knew you would miss the point.
Gary Englert February 25, 2013 at 04:11 PM
Steveb Serebrenik: Surely, you don't know me well enough to know what I miss and what I don't...but, I can assure you I don't miss much. If your point wasn't that you're far from enamored with paying for/supporting services/facilities you don't use, then what is it? Volunteers DO assist with the egg addling process but, someone must take the point...stay abreast of the technology...and organize the effort...and the current cost of doing that is $3,000 a year.
Gary Englert February 25, 2013 at 04:40 PM
wohopeful: There is nothing factual about your repetitive, incessantly negative posts, concerning everyone and everything, lobbed from behind the cowardly anonymity of a screen name. Simply labelling them as the nonsense they are spares my having the wrestle with a pig.
Paul Eggers March 13, 2013 at 01:57 AM
oops! meant "chooses to bury" not "choosed to bury"

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