by Ronald Leir, Jersey Journal
Thursday January 03, 2008, 5:30 PM

The Army has forbidden the city of Bayonne and the Bayonne Local Redevelopment Authority from playing its "shell game" with money paid by developers at the Peninsula at Bayonne Harbor.

In a tersely worded letter, the Army accused the city of violating the base transfer agreement and has threatened to recoup money Bayonne received from developers and reinvested in the former Army base to foster economic development and job growth.

The Army closed the Military Ocean Terminal at Bayonne in 1999 and sold the 430-acre tract to the city for $1 in 2001. In the base transfer agreement, the city agreed to abide by certain stipulations, such as how the money received in land sales is spent.

During fiscal 2005 and 2006, the BLRA took $45 million from the developers, gave it to the city (which plugged a budget hole) and the city in turn borrowed money for the BLRA to use on infrastructure improvements at the Peninsula.

"This is the first time the Army has raised the 'swap' as an issue," Interim Bayonne Mayor Terrence Malloy said. "We'll have to show that this mechanism promotes development at the former base by stabilizing taxes because if there is an overbearing tax increase, no developer will be able to sell his product."

The Army conducted an audit after receiving a complaint from Bayonne Local 1588, International Longshoreman's Association and confirmed the "swap" practice, which previously passed muster with the state Department of Community Affairs' Local Finance Board.

Army spokesman Dave Foster said that federal auditors remain skeptical about the BLRA's explanations about what it has spent on the former base and how it has spent that money.
"Somewhere there's been a miscommunication to the extent that the Army doesn't understand what we're doing," Malloy said.

Under terms of the sale of the base, the Army required that BLRA proceeds be reinvested in the property. "The swap transaction meets that requirement because every dollar being generated by the former base is being reinvested in the property," Malloy said. "It's now our mission to demonstrate that's what is taking place."

If the Army demands millions, Malloy said that both sides would likely end up in court.
Could the Army order all work at the Peninsula stopped? "I can't really answer that question at this time," Foster said.

Asked if the Army could retake the land, Malloy said: "Our lawyers say they can't do that."

Asked how the Army could look to demand cash from the BLRA, Foster said the base transfer agreement "allows the Army to recoup from the BLRA proceeds from the sale or lease of the property if the Army determines that the proceeds are not being reinvested to support economic redevelopment ..." And that payment would be due "within 60 days of proper notification."
Foster said that, "Any such recoupment ... is only intended to provide the Army with an equivalent amount that it would have received if the property had been sold to the BLRA for fair market value."