COLLINGSWOOD, N.J. (AP) - With well-regarded restaurants, a walkable main street dotted with yoga studios and rail service that zips commuters to jobs in downtown Philadelphia, this town of 14,000 is held high as a national model of smart growth.
But Moody's Investors Service this week said the town was unwise about how it financed one of its highly praised revitalization projects.
Moody's lowered the borough's bond rating from investment grade to junk status - something that has happened to only a handful of the 18,000 public entities the firm evaluates.
The downgrade is an admonishment of the very approach that boosters say made Collingswood indisputably one of Philadelphia's hippest suburbs. It could also be a warning to other towns: Be careful how you pay for renewal.
"I don't think any of us would be here if the current administration hadn't done some really cool stuff," said Beth Filla, a Collingswood native, homeowner, owner of the Yogawood yoga studio, and the wife of the town library director.
To be sure, there are people who have long thought city officials, including Mayor James Maley, are overstepping the bounds of what local government should do. But there haven't been enough of them to keep Maley from being re-elected since 1997.
When Filla was a student at Collingswood High School in the mid-1980s, she thought of her community as "was working class to the lower end of the middle class." By the time she moved back in 2000, her hometown was starting to look like a new place.
Maley, a lawyer specializing in redevelopment, became a borough councilman in 1989 and mayor in 1997.
In his early days in office, he said businesses didn't want to come to town. They would tell him the same thing: "You're too close to Camden," the neighboring city among the most impoverished and crime-ridden places in the nation.
Maley came to the conclusion the town government had to jump-start a revival. That meant financial risk.
"You've got to look at what the risks are to do nothing," he said.
Now, he said, prospective business owners aren't worried about being near Camden.
The first major redevelopment project came in 1996: As part of a $45 million deal, Collingswood put $8 million into a troubled apartment complex the mayor says was half-empty and $1 million behind in taxes. The town sold its stake in 2006 for a $4 million profit.
It followed with other aggressive projects.
For a dozen years, it has subsidized the interest costs for homeowners who convert duplexes and triplexes back into single-family homes, eliminating about 200 rental units.
The town bought a vacant downtown school and leases it to an architecture firm and other businesses, bringing 100 more office workers to the community. It used eminent domain to take two former gas stations. Both have been sold and converted to restaurants.
The most ambitious deal was the LumberYard, a planned development of about 120 condominiums and 21 businesses and near the town's downtown commuter train station. The town government provided land to a developer and guaranteed a loan.
Work started in 2006. The first phase of 41 homes sold out in six months.
Then came the recession and the big slide in real estate values.
Collingswood has some vacant downtown storefronts now. And the LumberYard has stalled.
The financing was reworked twice. One building that was to house stores was scrapped. Work on one of three residential buildings was halted.
The developer now owes a bank about $8.5 million, about half the amount the town government brings in in revenue a year.
Town officials are planning to borrow $4.5 million to buy 13 vacant condos. That would allow the developer to restructure debt again, and the community would be able to rent out the condos to generate revenue - and the hope of selling them for a profit in the future. But that deal isn't signed yet and, as it stands now, the $8.5 million is due next month.
Moody's said the Collingswood downgrade is not a warning towns should stay out of the development business, but it is advice that they should be careful.
"Can the city afford that and can the city make the timely payments?" asked Julie Beglin, a Moody's analyst.
Collingswood's redevelopment approach has won it praise far beyond the people who live in its quaint Victorians, shop at its Saturday farmers market or eat in its chic restaurants.
Last month, Forbes magazine called the town one of the nation's 10 most transformed neighborhoods.
And in 2007, the LumberYard was a winner of the Smart Growth award from the redevelopment advocacy group New Jersey Future.
The organization's executive director, Peter Kasabach, says it's tough to see the bond rating downgrading.
"What's disheartening for us is we know that the work that Collingswood has done is the right thing," he said. "They're planning the right way. They're building the right way. They're going to meet the demand that's going to come back."
Joe Tucker, who owns the seafood restaurant Joe Pesce, doesn't think the downgrade should scare the town into scaling back its renewal plans.
"I would like to see them do more," he said.