SCHAER/SCALERA BILL TO PREVENT ENCAP REPEAT CLEARED BY SENATE COMMITTEE

SCHAER/SCALERA BILL TO PREVENT ENCAP REPEAT CLEARED BY SENATE COMMITTEE
Measure Would Protect 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 today released by a Senate panel.

The bill passed the Assembly in December.

Schaer and Scalera crafted the bill (A-2650) following the collapse of the EnCap Mixed-Use Redevelopment Project, which received 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 serious problems not only in the way the state provides public money for private redevelopment, but also in how there is virtually no internal oversight mechanism," said Schaer (D-Passaic).  "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 2008 report by the state Office of the Inspector General (OIG), problems with EnCap existed from its inception in 1999. 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.

After EnCap was awarded the remediation contract the company changed its story and began applying for various state and county loans and grants, cobbling together more then $300 million. EnCap continued to secure public loans even after concerns about the project's viability surfaced, in large part due to the lack of coordination and communication between public entities.

"Residents and taxpayers have paid an expensive price to learn that we cannot rely on an honor system of handshakes, winks and nods when it comes to multi-million dollar redevelopment deals," said Scalera (D-Essex).  "Had an air-tight system of oversight been 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 $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 statements would be required to include a balance sheet, statement of income or loss and statement of changes in financial position.

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 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 Senate State Government Committee released the measure, which now is poised for a vote by the full Senate.

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