Bill to prevent Encap repeat on its way to Corzine

TRENTON – Legislation Assemblymen Gary S. Schaer (D-Passaic) and Fred Scalera (D-Essex) sponsored to enhance the protections and oversight surrounding public investments in private redevelopment projects today received final legislative approvals and was sent to the Governor’s desk.
The final Assembly vote was 64-11 with one abstention.
Schaer and Scalera crafted the bill (A-2650) following the collapse of the EnCap Mixed-Use Redevelopment Project, which squandered more than $300 million in public money from the state and Bergen County in an attempt to remediate abandoned municipal landfills in the Meadowlands.
“EnCap’s catastrophic failure highlighted the near-total absence of internal oversight in the way the state provides public money for private redevelopment,” Schaer said. “The breakdown of checks and balances that precipitated EnCap’s collapse must never happen again.”
Scalera echoed that Bergen County "learned an expensive lesson that it cannot rely on an honor system of handshakes, winks and nods when it comes to multi-million dollar redevelopment deals. This boondoggle could have been stopped at the very first sign of trouble had these reforms been in place sooner.”
Scalera and Schaer credited Senator Paul Sarlo (D-Bergen) for helping to move the measure through the Senate and positioning it for the final Senate vote. The vote is the culmination of more than one year of work and discussions among multiple parties affected by the EnCap disaster to ensure a balanced approach and response.
“Today’s vote is the result of months of hard work behind the scenes to open eyes and minds to the need for this kind of oversight,” Sarlo said. He is also sponsoring legislation based on EnCap’s collapse. “It’s a victory for the tax payers of New Jersey. This shouldn’t be the last word on enacting safeguards to prevent the ghosts of EnCap from manifesting somewhere else in New Jersey.”
As chairman of the Senate Regulatory Oversight Committee, Sarlo co-chaired a March 2008 joint hearing with the Senate Environment Committee that looked into EnCap after the release of a scathing report from the state Office of the Inspector General.
Schaer and Scalera also thanked Senators Bob Gordon and Loretta Weinberg (both D-Bergen) for being the measure’s co-prime sponsors in the Senate.
The Inspector General faulted the company for over-representing its environmental remediation experience and indicating that it had access to millions of dollars in private funding. The report also cited a lack of coordination and communication between public entities even after concerns about the project’s viability surfaced that allowed the company to change its story and apply for various state and county loans and grants, cobbling together more then $300 million.
The Schaer/Scalera bill would require businesses receiving any combination of grants, loans, or other financial assistance in excess of $50 million from single or multiple public entities to help fund a redevelopment or environmental remediation project to file annual, independently audited financial statements with the state Treasurer and each entity from which it has secured financing.
The measure also would stipulate the following for any qualifying contract:
· The private business spend a minimum of $1 for every $5 received in public funds;
· The public entity reserve 10 percent of the total funds approved to be disbursed upon the successful completion of the project;
· The private business submit payment of a performance bond, the amount of which would be tied to the project costs attributable to the publically funded improvements.
Failure to comply with the financial statement reporting deadlines would result in an increase in the amount of public money kept in escrow. Any business that knowingly fails to submit a financial statement or purposefully misrepresents the businesses finances would be required to refund the full amount of the public financial assistance.
A nonpartisan Office of Legislative Services analysis said the measure would “effectively function as an insurance policy for governmental entities.”
“We can never again allow the public’s trust to be undermined in such a way,” said Scalera. “We must make certain that part of the EnCap project’s legacy includes the preventative measure and proactive protections that will secure future public-private redevelopment partnerships.”
“Quite simply, the public cannot afford to finance another EnCap-style debacle,” said Schaer. “Putting these protections in place will help ensure that the mistakes made with EnCap cannot and will not be repeated.”

Major settlement reached in landfill cleanup

LYNDHURST – American Home Assurance Company will fund a $148.8 million cleanup of former Meadowlands landfills, a major breakthrough for an important project that will greatly improve the environment and quality of life in the Meadowlands, the New Jersey Meadowlands Commission announced today.
“This settlement and AHA’s decision to take responsibility for the landfill remediation is a huge victory for residents of the Meadowlands and the environment,” said Joseph Doria, Chairman of the NJMC and Commissioner of the State Department of Community Affairs. “I am pleased that AHA recognizes the importance of this vital project and that the cleanup can now move forward.”
AHA, a subsidiary of American International Group, is paying for the cleanup under the terms of a performance bond it sold to the landfill remediation project’s developer, EnCap, in May 2004. Under the terms of the bond, AHA promised to complete, or pay the cost of, the remaining work should EnCap default. EnCap declared bankruptcy in May 2008. Its bankruptcy filing was dismissed in federal court in February.
"We are pleased that American Home Assurance Company, a subsidiary of AIG, has made a binding commitment to honor the performance bond it issued,” said New Jersey Attorney General Anne Milgram. “This will allow this long-delayed project to move ahead."
The NJMC had sued AHA in federal and state court to compel the company to honor its policy with EnCap. The Commission expressed satisfaction that AHA has stepped up to ensure that the landfill work is completed.
“I am pleased that AHA and the State have reached a settlement to this long standing dispute,” said Robert Ceberio, Executive Director of the NJMC. “The company’s decision to fund the $148.8 million will at last allow work to restart on this critical landfill remediation project.”

EnCap saga continues

NORTH ARLINGTON – The borough and the proposed developer of a massive meadowlands project went to court on Monday, March 2 but did not start until March 3, because of the snowstorm.
Judge Jonathan Harris in Bergen County Superior Court heard the trial between the borough and various Cherokee Investment Partner entities – those with the notorious EnCap Company.
At issue was whether the original developer’s agreement between the previous borough administration and EnCap, and its parent company, Cherokee Investment Partners, is valid.
The borough’s position is that the agreement is invalid because EnCap failed to meet specific requirements to demonstrate it could fund the “Arlington Valley” project in the meadowlands on the eastern border of the municipality. The project was to include more than 1,600 housing units and at least 50,000 square feet of commercial space on 115 industrial acres below Schuyler Avenue.
Borough Attorney Anthony D’Elia, who represented the borough, said Encap has never demonstrated that it had the financing to complete the project and wants to tie up vast amounts of property to keep other entities from developing it.
D’Elia said that since the state denied EnCap’s request in November 2006 to give the company $100 million in financing against future tax revenue from the Arlington Valley project, the developer has failed to show it has financing for the project.
“EnCap has put the borough through all manner of turmoil and expense, and still cannot demonstrate it has the funding to undertake this mammoth project. We think this project is dead and the borough should be allowed to move forward with its own redevelopment plans,” D’Elia said.
EnCap’s North Arlington project, Phase II, is part of a massive meadowlands project, which included 785 acres of landfills in Lyndhurst and Rutherford. Phase I would change the area into a golfer's paradise but since EnCap subsidiaries filed for bankruptcy last year, that too is out of the picture.
A bankruptcy judge ruled earlier this month that EnCap has failed to demonstrate the financial ability to complete the project.
D’Elia said EnCap was depending on state funding for its project, but the (Gov.) Corzine administration said the project was too risky to finance with taxpayer money. State financing that was a loan against future revenues from the development was part of the April 2006 agreement between EnCap and the administration of former Mayor Russell Pitman.
After investing $200 million in the project, the state quashed EnCap altogether.
“Once the state refused to back EnCap, the company has struggled, and the borough has been in redevelopment Limbo,” D’Elia said. “Our position is that it is time to allow North Arlington to move on and chart its own redevelopment course.
Current Mayor Peter Massa, along with Steve Tanelli, was both council members in 2006 and had refused to sign the redevelopment agreement with EnCap.
Massa and Tanelli called for reviews of the redeveloper’s agreement, saying that the tax revenue predictions and home sales prognostications in the developer’s agreement were highly suspect and that the agreement could place the borough in long-term financial trouble if projects were unfulfilled.
Because both men testified in the trial, they cannot comment directly on the case, but Mayor Massa maintains that his top concern is for the community, not the developers.
“Steve Tanelli and I have maintained from the outset that the agreement with EnCap needed a more detailed and independent study to determine its true impact on the residents,” Massa said.
Tanelli stated that the final copy of the 280-page developer’s agreement, “was thrown on my desk a day or two before the council was to vote on it. I was not going to vote for such a complicated agreement without knowing what was in the document. I think it would have been irresponsible for me to do that.”
A big part of the EnCap plan is dependent on the borough declaring eminent domain against the private property owners along Porete Avenue, which is an industrial stretch of road off the Belleville Turnpike. Eminent domain is the government’s power to condemn private property.
The reluctance of the borough to condemn the Porete properties has been a major point of contention between the developer and the borough.
According to D’Elia, EnCap was supposed to deposit $20 million in an eminent domain escrow fund to pay for the condemnation and purchase of the Porete Avenue properties but they did not. The developer also reneged on soil samples they were supposed to take to determine the extent of the environmental cleanup necessary along Porete Avenue.
“EnCap did not live up to its agreement and just demanded that the council, start condemning private property,” D’Elia said. “This mayor and council said hold on, let’s look at this agreement closely and let’s see if EnCap is meeting its obligations – which are not the case.”
The borough is being sued by the Cherokee Investment Partners for breaking the agreement signed back in 2006 and during the first day of the trial they told Judge Harris that they wanted to end the partnership with the borough since they are not in accord with their piece of EnCap project, according to reports. They did tell Judge Harris that they wanted the $39 million back that they spent on planning and engineering.
The trial extended into the end of the week. Harris will make his decision on the case later.

After the fact

ENCAPPED

In this video commentary, Assemblymen Gary S. Schaer and Fred Scalera (both D-Bergen/Essex/Passaic) discuss the 77 to 0 passage of their legislation to enhance the protections and oversight surrounding public investments in private redevelopment projects.
Schaer and Scalera crafted the bill (A-2650) in response to the disastrous failure of the EnCap Mixed-Use Redevelopment Project. The project, which aimed to remediate abandoned municipal landfills in the Meadowlands, collapsed earlier this year when EnCap declared bankruptcy after receiving more than $300 million in public money from state and Bergen County sources.
Coming soon
Stay turned for more EnCap legislation sponsored by Asm. Schaer which passed the Assembly 77-0 in December, above video, has been posted for a vote by the Senate State Government Committee for this coming Thursday, Feb. 26. The Committee meeting begins at 1 pm and Assemblyman Schaer will be there to testify on its behalf.