After the inspector general called the EnCap Golf project a "study in what can go wrong," state legislators began seeking ways to make it right. Senator Paul Sarlo and Assemblyman Gary Schaer each proposed a bill designed to stop companies from misleading the state of New Jersey to gain millions in public funds.
The bills would stop a future EnCap in its tracks by annually auditing any redeveloper, remediator or business building environmental infrastructure that is given over $25 million in public loans.
The latest bill, sponsored by Schaer, takes it a step further. Schaer wants to make the bill retroactive to 2004, so the state can peek into EnCap’s financial documents. Also, any one of these companies that make a "false material misrepresentation on any application or report" must refund the subsidy and pay for attorney fees and action costs.
"I built upon [Sarlo’s bill] to make it more expansive and more far reaching," said Schaer.
This could spell big trouble for EnCap. EnCap did not disclose that its ownership had changed between the time they responded to the New Jersey Meadowlands Commission’s request for qualification and the time the agreement was signed. During this time, EnCap lost the backing of its chief financial backer.
By making this retroactive, EnCap would not only have to fork over millions in outstanding loans with the state, but would also need to cover attorney fees, which include hours of work from the inspector general’s office in enforcing its remedies under the agreement.
There was a dispute over whether or not a bill like this can go retroactive in the Office of Legislative Services, the state agency that drafts bills. "We’re getting mixed feelings on it," said Schaer.
If EnCap or any other entity challenges the law, Schaer said the state would be prepared to fight it. "If we need to go to court, if we want to get this done, we will do so," he said.
In addition to auditing redevelopers and receiving payback when they lie to the state, the bill has other provisions to scrutinize public-private partnerships.
First, all of these types of deals would require $1 of private investment for every $5 of public funds. In January 2007, media reports revealed EnCap gained $20 in taxpayer-based incentives for every $1 of private money.
EnCap led the state to believe it had adequate private financing to complete the project, but later secured hundreds of millions in loans from the New Jersey Environmental Infrastructure Trust and the New Jersey Department of Environmental Protection. At the same time, EnCap cut deals with the towns of Rutherford and Lyndhurst to secure a hefty percentage of future tax ratables on housing, office space and a hotel built on remediated landfills. Next, EnCap planned on securing a $300 million loan from the state backed by these future tax ratables.
It was at this point that Governor Jon Corzine questioned the project’s financing and called upon an investigation into the project’s financial history. The investigation, unveiled by inspector general Mary Jane Cooper in February, revealed how EnCap used a "divide and conquer" approach to gaining financing.
The state gave out loans and the local towns made financial agreements without one being aware of the other’s dealings, according to the report. To stop this from happening in the future, Sarlo proposed a bill to establish a "point person" to manage public-private partnerships like EnCap.
Schaer’s bill contains a similar provision. Under Schaer’s bill, the state treasurer would be required to designate a "point of contact," much like the point person mentioned in Sarlo’s bill, to oversee each project.
Ten percent of the funds would be placed into an escrow account and paid to the developer after the project is completed.
Lastly, the private developers would be required to post a performance bond equal to 110 percent of the cost of the project to ensure against failure of the project. In the case of EnCap, the company secured a $148 million security bond, 125 percent of the entire project. This was decided in the agreement between the New Jersey Meadowlands Commission and EnCap at the recommendation of commission attorneys, who called it "the industry standard" at the time, according to Brian Aberback, a spokesman for the New Jersey Meadowlands Commission.
