Freeholders Galvanized Into ParalysisUrban Times News
February 21 -28, 2003
By Steven Glazer
(Jersey City) Freeholders were
urged to prosecute this newspaper for libel
and slander on behalf of the Hudson County
Improvement Authority. Joseph Gallo, a
Jersey City resident told Freeholders that he
was upset by reading published reports that
the HCIA has amassed public debt of $373
Million by misusing proceeds of bond sales.
"Either prosecute the officials responsible,
if it is true, or prosecute the newspaper if it
is not true," demanded Gallo.
Freeholder Barry Dugan admonished Gallo not to believe everything that he
read in the newspapers. Freeholder William
O'Dea agreed that it was unwise to believe
everything in the newspapers, but added
that another wise old saying cautioned that
"Where there is smoke, there is fire, and
there is a hell of a lot of smoke here. This is
the third time that I have publicly called for
an accounting of these transactions."
Other Freeholders and County officials remained silent. The HCIA has
been the subject of reports that it misused
public funds and misrepresented its inten-
tions for the use of funds and that it
employed other questionable management
practices involving hundreds of millions of
dollars of financing.
This publication has reported
amongst other things, that:
The HCIA borrowed $112 Million
to build a 590-bed hospital in Secaucus. No
hospital was ever built. The project was
abandoned but the money was not returned
and instead was used for other purposes not
detailed in the official statement of the bond
sale. Freeholder Bill O'Dea has called
for an accounting of the use of proceeds of
that bond sale. O'Dea added that in fact that
the HCIA used bond proceeds to fund its
operations, an unauthorized use of those
funds.
The HCIA borrowed additional amounts, more than $200 million to purchase a site and build an incinerator. The
incinerator was never built because
Environmental Protection Agency regulations changed to prohibit the incineration of
solid waste. A site, known as the Koppers'
Site in Kearny was purchased at a cost of
$18 Million in 1989. But the rest of the
money was never returned to investors, but
instead used for other purposes not specifically detailed in the official statement of the
bond sale. Some of the bonds were later
refinanced at lower rates, but a substantial
amount remain outstanding, according to
the latest audited financial reports of the
HCIA's financial condition. Those reports,
prepared by Ernst and Young, disclose that
the HCIA had $374 Million of outstanding
debt remaining at the end of 2001. The
deficit results from the cumulative issuance
and refunding of about $850 Million of
bonds since 1989, in a pattern of "churning"
transactions. Churning is a legal term
applied to securities transactions motivated
primarily to generate fees and commissions.
Freeholder Bill O'Dea has called for a complete audit of all the agency's securities
transactions to determine what has happened to all the money borrowed, refinanced, and paid out to various consultants
and advisors. Each issuance of bonds
incurs cost of about 2 to 2.5% of the amount
financed for such fees. O'Dea has also
demanded an accounting of these professional fees.
The HCIA presented inflated estimates of revenues and reduced estimates of
expenses in presentations of projected tipping fees to Freeholders, explaining the rate
structure of fees charged for solid waste disposal. Freeholder Bill O'Dea has charged
HCIA officials, commissioners, and consultants with fraud in the presentation of
those financial projections to Freeholders.
O'Dea said when he charged fraud that
those individuals responsible should be
brought to account whether currently active
with the agency or not. If still active, they
should be terminated, O'Dea demanded,
and if not they should still be brought to
account, including criminal charges, if it
were so determined.
The HCIA routinely awarded no-bid patronage contracts for financial advisory services to NW Financial services to act
as underwriter for HCIA bond issues.
Neither Dennis Enright, principal of NW
Financial Services, nor NW Financial
Services itself is properly licensed to act as
underwriter, nor has either ever been.
Federal Securities law prohibit persons or
companies without proper securities registration to engage in underwriting. Enright
has underwritten several HCIA municipal bond issues in clear contradiction of the
applicable securities law. By knowingly
awarding the contract to an unlawful underwriter, the HCIA implicates itself in a violation of federal securities law.
As financial advisor, Enright frequently represented both seller and buyer in
the same transaction, with the full knowledge of HCIA officials, and sometimes with
catastrophic results for the County of
Hudson. Enright helped the HCIA issue
bonds used to buy Pollack Hospital from
Hudson County. Enright then represented
the HCIA in the sale of Pollack Hospital to
Progressive, a nursing home operator who
went bankrupt after taking title to Pollack
but before paying for the purchase of the
Hospital and the associated nursing bed
licenses. Enright then offered to represent
Progressive in the work out of its reorganization. Former County Executive Bernard
Hartnett said that had Enright been an attorney and tried that he probably would have
been disbarred.
Knowing all of this, the HCIA has
awarded Enright another annual contract,
including a clause that prohibits the award
of the contract to any party that has engaged
in prior unlawful act or pattern of behavior,
exactly as described. The contract follows
six months after the last transaction by
Enright as underwriter, despite HCIA officials' knowledge of federal securities laws.
A representative of the County Executive
said that DeGise, the new County
Executive, did not consider the allegations
serious enough to warrant action and that
even if they were true, the debt load of $373,
744,000, roughly the same or little more than the County's entire annual budget, did
not constitute a threat to County taxpayers.
James Kennelly said DeGise was confident
that the HCIA was easily able to service the
debt from its revenues. Audited financial
statements show that besides the accumulated deficit, the HCIA is losing money on an
operating basis, roughly 10% of revenues
according to the latest audited figures available. Those audit figures show a loss of $3.5
Million on revenues of $35 Million for the
year ended December 31, 2001. Kennelly,
speaking for DeGise, said that Jersey City
would not withdraw from County waste
flow, so the revenues would continue to be
adequate. Jersey City is in fact preparing a
suit to withdraw from the HCIA County
waste flow plan.
Kennelly also said DeGise felt that there
was no likelihood that bond investors would
feel that they had been deceived because
their funds were used for purposes other
than those represented in the official statement of the bond sales. If the HCIA were
unable to meet its obligations to bondholders, County taxpayers might have to offset
any deficiency that might result. Kennelly
said DeGise did not feel that bond buyers
would be concerned enough to demand
accelerated repayment of the debt. Kennelly
added that DeGise saw no need for action
beyond what is already being done, but was
unclear what that was. Apparently Kennelly
was referring to annual audits performed as
a matter of course that so far have not
addressed the question of where the bond
proceeds were applied as O'Dea is demanding to know.
