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MEADOWLANDS > Continued from page 1 Chamber CEO Jim Kirkos said the financial feasibility of the concept — which would call for an investment of around $1.5 billion — “will be dependent on answers to a request-for-proposals that would be issued by the state. It will only be clear what the site is worth by looking at market activity.” He stressed, however, that construction of the plan would be funded by the private sector. Gaming “is an important catalyst” for private-sector investment, said Carl Goldberg, a partner at Roseland Property Co., in the Short Hills section of Millburn, and former chairman of the New Jersey Sports and Exposition Authority. The fact that the casino could be accessed via rail from New York’s Penn Station “is an extraordinary geographic dynamic that would excite the private sector,” because of gaming’s evolution into what he called “a convenience industry.” The decision whether or not to go to a casino “is driven by the ease of getting there.” Still, along with private-sector investment, some components of the vision plan “would likely require some element of tax- Revel’s casino in Atlantic City stalled when the economy faltered, but the Economic Development Authority approved $260 million in tax-increment financing to help complete the $2.8 billion project. CARE > Continued from page 1 25 nursing homes and 37 home health/ hospice providers, with a staff of 54,000 employees across 11 states. In New Jersey, most CHE hospitals are in cities with large low-income populations: St. Francis, in Trenton; the Lourdes Health System, with hospitals in Camden and Willingboro; and St. Michael’s Medical Center, in Newark. These urban hospitals depend more heavily on the “government payers” — federal Medicaid and Medicare, New Jersey charity care — than the more generous reimbursements hospitals may negotiate with commercial health insurers. Given the tough economics of urban care, Persichilli said CHE’s New Jersey hospitals are fortunate to belong to the big, financially strong, A-rated CHE, which she said made about $40 million in 2010. St. Francis made money last year, while both St. Michael’s and Lourdes ended 2010 in the red, she said. “The challenge, first of all, is the definition of success,” Persichilli said. “Our definition of success, which is based on our incremental financing” through the state’s Economic Redevelopment Growth grant program, which provides grants of up to 75 percent of a project’s annual incremental tax revenues, Goldberg said. “The infrastructure associated with these projects can be very expensive,” he said. “Tax-incremental financing can help mitigate infrastructure costs and attract the private sector to provide the rest of the capital to execute the rest of the project.” Two major projects in New Jersey are due to receive state assistance: Last month, the Economic Development Authority approved $260 million in tax-increment financing to support the completion of the troubled $2.8 billion Revel casino development in Atlantic City; an ERG grant also is being considered for the stalled Xanadu retail and entertainment complex, near the proposed site for the chamber’s vision plan. Still, more than 99 percent of the costs of another high-profile development — the $1.5 billion New Meadowlands Stadium, adjacent to the Xanadu site — was financed by private investment, with the state paying for some related road improvements, according to Goldberg. The chamber’s concept “really hinges on the casino aspect” as its main revenue values, is that we have a preference for the poor. We believe we are succeeding if we are reaching out and taking care of the most vulnerable of our communities. We’re really committed to urban health care.” National health care reform will cut government payments to hospitals by $155 billion over the next decade — in part by not paying hospitals for unnecessary readmissions or care of hospital-acquired infections, she said. But the other side of the coin is the law’s mandate that in 2014, most Americans must get health care coverage, potentially giving CHE’s hard-pressed urban hospitals fewer uninsured patients and more revenue. “Our biggest fear is the cuts (to hospitals) are going through, and the coverage (of the uninsured) is going to be stalled,” Persichilli said. “That will cause mergers, consolidations, closures — there are some organizations that won’t be able to make it.” Indeed, if St. Francis, St. Michael’s and Lourdes were freestanding hospitals, they might be facing an uncertain future, she said. A standalone hospital without strong operating margins might not “have access to capital to buy state-of-the art equip- Photos by Christina Mazza An Economic Redevelopment Growth grant is being considered for the longdelayed Xanadu project at the Meadowlands. generator, said Jeffrey R. Gural, chairman of real estate services firm Newmark Knight Frank and owner of the Tioga Downs and Vernon Downs racetracks, in New York. “Without a casino, it would be almost impossible to finance the project.” But not everyone considers a casino to be a safe investment option. “With a casino, you hope to have a revenue stream, but there’s no certainty” as there would be with a major retailer in a shopping center, said one source in the real estate industry. “That’s the risk.” Gural, who is trying to secure financing in his bid to take over the Meadowlands Racetrack, expected “nothing is going to happen for the next couple of years” with the chamber’s vision, given Christie’s opposition to a Meadowlands casino, but that could change if a legislative push in New York to allow table gambling at the Aqueduct and Yonkers racetracks is successful. That would make it “very difficult for New Jersey not to counter by putting casino gambling in the Meadowlands,” he said. “It’s very hard, logically, to say the Meadowlands will be competing with Atlantic City, because Atlantic City is already competing with New York.” Gural said the chamber’s concept ment, build ambulatory care centers, to spend money strategically — because they wouldn’t have access to financing.” CHE, she said, “really provides a safety net for all of our hospitals.” Meanwhile, her strategic vision for CHE is to provide more and more care outside the acute-care setting, at outpatient facilities and in the patient’s home. The traditional hospital with emergency rooms and intensive care units will be part of a system where outpatient, primary and preventive care strives to reduce emergency room visits and hospitals admissions. St. Francis has a so-called PACE center in Trenton that provides all-inclusive care to the elderly; Camden has one and Newark will by year-end. St. Francis is developing an outpatient ambulatory care center in Bordentown, while Lourdes has physicians offices outside Camden’s city limits. Persichilli said the elderly patients in PACE centers often are eligible for both Medicaid and Medicare, which pay CHE to provide care where it makes clinical sense, whether that’s a hospital, a clinic or at home. Five years ago, St. Francis delivered 80 would complement his racetrack project at the sports complex, noting business at the Tioga Downs casino improves on racing days. The feasibility of financing the vision also depends on what the casino tax rate — the percentage of casino revenue that goes to taxes — would be in the Meadowlands, he said. “The tax rate will determine how easy it is to finance” the casino, he said. Christie and the Legislature may consider the chamber’s vision as “an alternative plan” if Atlantic City fails to make progress, said Nicholas R. Amato, director of the casino and resort development practice group at law firm Genova, Burns & Giantomasi, in Newark, and former executive director of the Casino Reinvestment Development Authority. “If this was a viable project, every major casino would want to build a casino in the Meadowlands,” Amato said. “You’d probably have people knocking down your doors.” Amato disagreed that the chamber’s vision would require state assistance. Revel was the rare exception of a casino needing a state subsidy, since its construction stalled as the economy soured, he said: “If a casino needed a subsidy to be built, it probably wouldn’t be successful there.” E-mail to: elee@njbiz.com percent of its care in the hospital; now there is an even split between inpatient and outpatient care, she said. Outreach to the homeless is a major goal; Persichilli said CHE’s hospital CEOs “get an incentive, a financial reward by increasing their outreach to the homeless in their communities.” Improving the health of the homeless makes sense, since, “they show up in our emergency rooms repeatedly, with mental health and substance abuse problems that are big deterrents to their health.” Persichilli said it’s been estimated 1 percent of the population of Camden accounts for 30 percent of the city’s health care spending. “If we can get to that 1 percent in Camden, in Trenton, in Newark — we’ve changed the cost structure, the per capita cost of care, and we’ve improved the population health.” Asked what she misses about her days as a bedside nurse at St. Francis, she said: “When you’re a nurse you can go home every day and know that you’ve done something really special. When you’re the CEO of a system, sometimes it takes years.” E-mail to: bfitzgerald@njbiz.com 6 March 7, 2011 ◆ njbiz www.njbiz.com
LEASE > Continued from page 1 asset would be recorded as an asset on the balance sheet, and the corresponding lease payments recorded as a liability. While capital or fi nance leases are recorded on the balance sheet, lease payments made under operating leases currently are recorded as expenses on a company’s income statement as they are incurred, and nothing is recorded on the balance sheet. The proposed changes — intended to provide more complete information to investors on the fi nancial effects of lease contracts — are expected to be fi nalized sometime this year, with implementation possible in 2013. “It’s going to be a dramatic change,” said Gary Illiano, national offi ce partner at accounting fi rm Grant Thornton, in New York. “It affects anyone who has any kind of lease — it affects virtually every company.” If the change goes through, operating leases will be recorded on a company’s balance sheet, which could dramatically increase a fi rm’s assets and liabilities, and skew various metrics used to assess a company, Illiano said. Under current standards, a company with $10 million in assets, $8 million in liabilities and $2 million in equity has a 4-to- 1 debt ratio, he said; under the proposed changes, a $10 million lease would increase assets and liabilities each by $10 million, creating a 9-to-1 debt ratio, he said. Such changes to a company’s balance sheet “may run afoul of existing debt Non-profit organizations have relied on our proactive approach to cost-effective business solutions and tax issues for more than 20 years. Nearly half of our clients operate in the non-profit sector. You can trust our CPAs and Consultants to be your advisors for the long-term. SGA Group is just right for your organization. covenants” with banks, said Marc E. Betesh, president and chief executive of KBA Lease Services, in Woodbridge. If a debt covenant restricts a borrower from having more than a certain amount in debt, “that may be violated by this change,” he said. In response to concerns raised by businesses, FASB and IASB tentatively decided at a joint board meeting last month to identify two different types of leases: a fi nance lease, which would have a profi t-or-loss effect consistent with the proposals, and an other-than-fi nance lease, with a profi tor-loss effect consistent with an operating lease under current accounting standards. The boards also tentatively agreed that renewal options would be considered part of the lease term only if there is a signifi cant economic incentive to extend the lease; the boards had previously proposed in their exposure draft that assets and liabilities would be recorded based on the longest likely possible term of the lease, taking into account any options to extend or terminate the lease. The boards are seeking input on their tentative decisions to determine whether stakeholders’ concerns would be addressed. While it was positive that the boards were recognizing concerns from businesses, said Jeff Milanaik, president of Heller Industrial Parks, in Edison, the proposed changes still lack clarity, and as long as there is uncertainty surrounding the lease accounting changes, “tenants are going to go for shorter lease terms, so it won’t adversely affect their balance sheets.” But landlords “like longevity in lease terms,” Assurance Tax Outsourced Solutions Consulting Just Right for You 100 Walnut Avenue Suite 103 Clark, NJ 07066 732.381.8887 info@sganj.com www.sganj.com which is benefi cial for securing fi nancing for buildings. Milanaik said he and other members of the commercial real estate industry submitted their objections to the proposed changes during the comment period, which ended Dec. 15, and are now awaiting the fi nal version of the proposals. Real estate owners need longer term leases to create value for their assets, said Ray Sohmer, executive vice president at commercial real estate services fi rm Jones Lang LaSalle. The timing of the accounting changes “is completely inappropriate, because of the negative pressure the economy had on the value of commercial real estate buildings,” he said. A short-term lease “is going to be negatively impacting value even further.” Meanwhile, the changes will “diminish the attractiveness of the renewal option,” Sohmer said. Tenants “use that option as leverage to renew,” he said. If a company indicates its intent to renew in an annual report, it loses that leverage. And regarding the boards’ tentative decision on renewal options, “it’s very unclear how to evaluate what a ‘signifi cant economic benefi t’ is and equate it to some probability they’re going to renew,” he said. Under the existing accounting rules, “it was sometimes more advantageous to lease a property, because a lease did not show up on the fi nancial statements,” Betesh said. Under the proposed rules, though, “there may be no material difference in whether you buy or lease.” The most immediate impact of the Impact of changes ■ Only 7 percent of executives felt their companies were very prepared to comply with the new lease accounting standards, according to a survey released by accounting and consulting fi r m Deloitte last month. ■ More than 80 percent said the new standards will place a signifi cant burden on fi nancial reporting for both tenants and owners. ■ More than 40 percent believe the new standards would make it more diffi cult to obtain fi nancing. – Evelyn Lee new standards would be “the huge administrative burden for the accounting industry and the business community,” Betesh said. Companies will be required to organize all of their lease documents, so they can properly analyze the current and projected costs of their leases, he said. “A lot of accounting fi rms don’t have a lot of expertise in real estate leases,” and may not know how to determine the proper allocation of costs, or project the future costs of such leases, Betesh said. And the need for companies to seek, and pay for, more assistance from their accounting fi rms would essentially amount to “an unfair tax on small business,” especially for New Jersey’s signifi cant small and midsized business population, Sohmer said. E-mail to: elee@njbiz.com unitybank.com 1.800.618.BANK (2265) Green Light your business growing with you! www.njbiz.com njbiz ◆ March 7, 2011 7
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