WANNA BUY SOME NURSING HOMES?

NO MONEY DOWN, PAY LATE -- WE TRUST YOU
HOW ABOUT A WATERFRONT WALKWAY?

By Steven Glazer

Urban Times News
May 17, - May 23, 2002

(Jersey City) When Bernard Hartnett took over as County Executive for the balance of Robert Janizewski's unexpired term he began to clean up the mess that he inherited, exactly as he said he would do. Janizewski left office under a cloud amidst allegations of financial irregularities while in office late in September 2001.

One of the changes that Hartnett made was his decision in Decemver not to renew the County's contract with NW Finanancial who had bee financial advisor to the County and the Hudson County Improvement Authority for several years. NW Financial is a financial advisory firm and an underwriter who has enjoyed a virtual monopoly with the County and with the HACI worth an estimated $500,000 per year, not including underwriting fees, for that period.

The National Association of Securities Dealers is a self-regulating organization mandated by Federal Securities law to have brokerage firms police thmeselves. The NASD has no record of registration for membership of NW Financial Group, and a spokesperson for NW told the press that the firm is not registered. Federal Securities Law clearly forbid unregistered or unlicensed firms or persons from acting as an underwriter, or receiving the compensation of an underwriter, or even holding themselves out publicly to be underwirters, if they are not registered with the NASD.

Yet NW Financial has been selected to be the underwriter of the HCIA's next bond issie over the strenuous objection and statutory veto of County Executive Hartnett. Other County officials have also noted un-businesslike practices by HCIA commissioners in the process of approving the selection of NW Financial Group. NW Financial is back at the eye of the storm currently swirling about the West New York-Weehawken segment of the Waterfront Walkway that eventually will stretch from Bayonne to the Washington Bridge.

Hartnett may unknwoingly hae lit a fise with tat fateful decision not to renew NW's contract with the County. Dennis Enright, the principal of NW Financial, had been the top fundraiser for Bo Hanizewski's tenure in the County Exec's job and before. Apparently, the fuse that Hartnett lit was fast-burning and reached all the way to Washington DC, terminating in the office of Congressman Robert Menendez D-13th. There followed almost immediately a phone call from Menendez to Mayor Glenn Cunningham, asking Cunningham to go to bat for NW Financial with the new County Executive, Hartnett. Menendez is at odds with Hartnett in Hartnett's role as County Executive and has been energetic in publicly pushing another cnadidated for the job to replace Hartnett in the coming June Primary.

Cunningham refused to make the call, and the rest, as they say, is history. What followed has led to what now amounts to open warfare in the political arena erupting into public view with bizarre spectacles like the County Executive suing the County several times in recent weeks in Hudsom County Superior Court, for example. There recently have been allegations of payroll padding by Hartnett leaked to the press from sources rumored to be associated with a vengeful Menendez. The payroll padding allegations proved to be totally unfounded. Official County employment records show that the county emplous 2,771 workers as of 1 May compared with 2,777 at 1 September before Hartnett coming to office. The rumors that circulated had it that 128 persons had been added to the County payrolls, yet the payroll has actuall decreased slightly. The amount of the payroll itself has increased says Hartnett, but only as muach as earned and deserved and proper raised to employees and according to agreements negotiated with labor unions, says Hartnett.

Any kid in school will tell you that when you sell your house or your car -- anything major -- it is customary to keep some kind of security interest, a lien or a mortgage, for example, in the proeprty you are selling until you have been paid in full. Suppose a buyer comes to you and wants to buy your house and agrees to pay you what you consider a very good price. In fact he is also willing to buy the mineral rights to the proeprty your house is on so he can dig for gold or drill for oil on the property regardless of who owns the house or the property. You have a deal, right? So far so good.

Here's the hook. Your buyer says to you after agreeing to all of that, that he will only pay you your price that you both have just agreed to five years from now. Until then, he will only pay you a moderate amount of rent until the five years is up. You hand him a certificate for the mineral rights, but you hang on to the deed. He can do whatever he likes with the mineral rights immediately since you have handed them over already. You say OK to the deal, shake hands and walk away, thinking that you have done just fine. Five years come and five years go and you get a call from the buyer of your proeprty and the mineral rights. "Sorry, but I am not going to be able to pay you. I just went bankrupt." Oh well. Now you have to go to court and get your house and mineral rights back, never mind your money.

Would you make a deal like that? Of course you would not. Nobody would. But that is exactly what Hudson County did with two Nursing Homes that it owned, but later sold to the Hudson County Improvement Authority. HCIA, advised by NW Financial, then issued municipal bonds creating $16 million of public debt to pay the County for the Nursing Homes. NW Financial then helped HCIA find a buyer for the Nursing Homes and the Nursing Home Licenses that accompany and authorize the Homes' operation.

Progressive, the buyer, was the high bidder, but with a blemished performance record. Past performance had resulted in a bar by the state of Massachusetts for infractions there. Progressive also wanted terms to pay the price. The concession was a five-year period during which Progressive would pay only some rent but would take possesion of the facilties and the licenses and full operating control of the facilities and the revenues they enjoyed. According to Hartnett, Progressive had all the benefits of ownership and control without putting up a down payment of any upfront cash as might be expected. The County failed to retain a security interest or lien of any kind on the 1,010 valuable licenses that are marketable separately by themselves.

Conditions at Pollack under Progressive deteriorated to the point where the facility was ordered closed and Progressive went into Bankruptcy. The two Nursing Home facilities, Pollack and Meadowview, the buildings and the real estate, together with the licenses that allow their operation are now in the hands of a Federal Bankruptcy Trustee, and the County is in the position of struggling to get back what it has already owned and sold but has not been paid for. Whether or not the County succeeds in recovering the properties and licenses, it is obligated to pay the principal and interest payments for the bonds issued, no matter what.

Hartnett has somehow managed a workout of the convoluted situation that provides a happy ending for the County. The County Executive announced a newly negotiatied agreement with a reputable operator including appropriated financial arrangements and safeguards for taxpayers. The new arrangement includes an expansion of the Meadowlands facility by the new operator and the construction of a brand new facility in Jersey City to replace Pollack. The County is to receive $10 million from a qualified buyer plus and new nursing home, through Hartnett's efforts.

The proposed transaction to finance the riverfront Walkway is structured in the same fashion as the Nursing Home sale was structured. In the end, the transaction will leave the two municipalities laible for the $16-million indebtedness assocaited with the project should the developer have financila difficulty. In that case, Weehawken and West New York would be obligated to make the payments out of their municipal budgets. The same advisor is giving he HCIA the same advice to enter into the same transaction and the HCIA commissioners are apparently expecting a different result this time.

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