SCHAER/SCALERA BILL ENHANCING PROTECTIONS IN PUBLIC/PRIVATE REDEVELOPMENT CONTRACTS ADVANCES

Measure Would Help Prevent Repeat of EnCap Redevelopment Disaster; Prevent Public from Being Financially Liable in Future Public/Private Deals Gone Bad

(TRENTON) - Legislation Assemblymen Gary S. Schaer and Fred Scalera sponsored to enhance the protections and oversight surrounding public investments in private redevelopment projects was released today by the Assembly State Government Committee.

The sponsors said the bill (A-2650) was crafted in response to the disastrous failure of the EnCap Mixed-Use Redevelopment Project in Bergen County.  The project, initiated in 1999 as a way to remediate abandoned municipal landfills in the Meadowlands, collapsed earlier this year when EnCap declared bankruptcy after applying for - and receiving - over $300 million in public money from the state and the county.

"EnCap's catastrophic failure revealed serious problems with the way the state allocates public money to private redevelopment," said Schaer (D-Passaic), the vice-chairman of the panel.  "The total breakdown of checks and balances that allowed EnCap to squander hundreds of millions of taxpayer dollars must never happen again."

According to a March report by the state Office of the Inspector General (OIG), problems with EnCap existed right from the start.  When EnCap responded to the state's request for qualification, the company drastically overrepresented its environmental remediation experience and indicated that it had access to millions of dollars in private funding, which would free it from the need for public funding assistance.

Soon after EnCap was awarded the remediation contract, however, the company changed its story and began applying for loans and grants from the state and the county.  Throughout the course of the failed remediation project, EnCap was awarded over $300 million in public funds, in the form of grants and loans from various state and county agencies.

The OIG report stated that EnCap was able to continue securing loans from state and county agencies even after concerns about the project's viability surfaced in large part due to the lack of coordination and communication between public entities.

"The public once again has paid an expensive price to learn that we cannot rely on the honor system of handshakes, winks, and nods when it comes to multi-million dollar redevelopment deals," said Scalera (D-Essex).  "If we had the proper oversight mechanisms in place, we might have been able to halt this boondoggle at the very first sign of trouble."

The Schaer/Scalera bill would require businesses receiving any combination of grants, loans, or other financial assistance in excess of $25 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 public entity.  The financial statements would be required to include a balance sheet, statement of income or loss, and statement of changes in financial position.

It also would require any public entity entering into such an agreement to provide the state Treasurer with information including the name of the project and the nature of the project-related activity for which financial assistance is being given.

The Treasurer would be empowered to designate a single employee of a single public entity involved with a project as the sole point of contact between the state, the involved public entities, and the private business.

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 place 10 percent of the total funds provided in an escrow account, which will not be disbursed to the private business until the successful completion of the project, as certified by the public entity;
• The public entity reserves the right to review the qualifications of any subcontractor hired to perform work on the project; and
• The private business submit payment of a performance bond equal to 110 percent of the total contract price.

Failure of private businesses 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.

"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."

The committee released the measure by a vote of 3-0-2.  It now heads to the Assembly Speaker, who decides if and when to post it for a floor vote.

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