In an effort to settle more than $1 million in debt, the South Jersey Economic Development District will apply for a $650,000 loan from the New Jersey Economic Development Authority.
The loan would allow the district to finally pay the contractors who worked on the $7 million infrastructure installation completed last year at the NextGen Aviation Research and Technology Park in Egg Harbor Township.
While the state is willing to provide the loan,the district's four member counties - Atlantic, Cape May, Cumberland and Salem - must guarantee that they will repay the money should the district not be able to meet its loan obligations, officials said.
SJEDD's board voted to move forward with the formal loan application on Monday night, but all four member counties will now be required to pass interlocal agreements drafted by Atlantic County stating that they will each take on 25 percent of any potential liabilities if the district is not able to repay the loan.
"Under the circumstances, SJEDD certainly doesn't have the collateral to support a loan without the county guarantee requested by the EDA," said Steve O'Connor, the district's interim executive director. "This is all one big settlement to be able to get out of debt as well as be able to turn over the lease from SJEDD to the (NextGen park's board)."
SJEDD fell into significant debt while leading an infrastructure installation at the park. The district's former executive director, Gordon Dahl, exhausted a bank loan intended to pay the contractors and allowed the debt to accumulate. He then improperly used hundreds of thousands of dollars from revolving loan funds to foot some of the bills. Board members said they were never consulted about those decisions.
Dahl said earlier this year the contractors weren't paid due to insufficient work. The board later voted to remove him from the position he held since 1987, and other financial missteps were discovered.
Howard Kyle, chief of staff to Atlantic County Executive Dennis Levinson, has been working with the state EDA on the potential loan. The EDA is willing to provide a loan that would be paid back over 10 years at a 3-or-4 percent interest rate, he said.
"What's important here is that this brings the district's debt to an extremely manageable level," Kyle said. "The goal is for this to be paid off within the district's existing budget. Once this is settled, you're pretty much out of the woods."
If the loan is approved, it will mark a significant breakthrough in the hurdles facing both the NextGen project and the district.
The $650,000 not only allows contractors to be paid, but will also ensure that the district can close out a $2.5 million grant from the U.S. Economic Development Agency. The agency would not release the remaining $250,000 of the grant until the district fronted the money. It will also allow the district to close out a $320,000 bank loan - a move necessary to end the district's obligations to the project.
SJEDD board member William Morey, also a Cape May County freeholder, stressed that the district would not be taking on any additional debt by taking out the loan. Rather, the loan signifies a restructuring of the district's currently financial obligations, he said.
The Federal Aviation Administration owns the land for the park and leased it to the district. Officials have been stymied for months in attempts to turn over the land lease to the NextGen park's board - a move necessary before development can begin. The district has to close out its remaining grants tied to the project before a transfer can take place, officials said.
This is not the first time the state EDA has offered to help the district pay its debts. In January, Dahl and his attorney turned down an offer from the agency for a loan that also would have allowed the contractors to be paid. However, as a condition of that loan, the EDA would have required that the district transfer the lease - a condition Dahl was not willing to accept at the time.
Dahl's decision to turn down the loan led to heated discussions among officials who said the district was only looking for bailout and was unconcerned about the contractors.
Since that time, the district has made significant strides in revamping its organizational and financial structure. Last week, the district shut down its office at 226 N High St. in Millville and laid off its two full-time employees. The district is in the process of moving into a space provided at no cost by Cumberland County.
A corrective action plan suggested the district could save money by hiring a private company to conduct most of the district’s operations. The district will have one internal employee – a project coordinator to monitor funds and identify project ideas.
Applications for the project coordinator position and legal counsel, and a request for proposals for the firm handling operations were both due back last month. However, SJEDD voted Monday to reject the applications received and re-advertise after the federal EDA noted that mandated federal language was missing from the advertisements.
It will take about a month to go through the process a second time, O’Connor said. In the interim, SJEDD’s board has opted to extend its temporary arrangement with O’Connor through the beginning of December.