A group of lawmakers led by the top Democrat in the Assembly is sponsoring legislation that would add to the financing authority that towns have, specifically by enabling them to help developers raise cash through bonds backed by state tax incentives from the New Jersey Economic Development Authority.
The proposal could result in towns throughout the state taking on new debt obligations in the name of redevelopment, a concern raised by some Republican lawmakers during a legislative hearing yesterday. But proponents stressed that local officials will have the option of helping developers without having to bear any of the risk in the event a project fails. The legislation has largely flown under the radar in the State House, without the routine issuing of press releases by legislative staff at each turn.
Backed by business
The proposed public-finance policy changes have drawn strong support from several business groups, including the New Jersey Chamber of Commerce, the New Jersey Business & Industry Association, and the state chapter of the NAIOP commercial real-estate organization.
The effort is not without precedent. For more than a decade, New Jersey public-finance law has given towns that want to encourage redevelopment the power to help developers raise upfront cash through bond issues backed by payments from local tax breaks.
The goal of the proposed “Economic Redevelopment and Growth Grant Financing Bond Act” is to emulate the track record of the state’s Redevelopment Area Bond (RAB) law. Enacted in 2001, that law gives towns the power to work with developers to generate upfront cash to cover costs for things like construction through bonds that are backed by long-term Payments In Lieu of Taxes (PILOTs).
Perhaps the highest-profile recent example of the use of the RAB law was last year’s push by the developer of the American Dream megamall project in the Meadowlands to secure more than $1 billion in bond financing to help cover construction costs, in part by working with officials in East Rutherford to pledge PILOTs that the developer will owe the town for the next several decades. But part of the complicated package of financing for the American Dream project also involved other bonds that were issued by the state; these effectively securitized a nearly $400 million long-term tax incentive provided through the EDA’s Economic Redevelopment and Growth Grant (ERG) program. Like PILOTs, the ERG incentives are paid out incrementally over time, and only after a project is completed and starts to generate revenue.
Because the American Dream project is being built in the Meadowlands district, which is administered by the New Jersey Sports and Exposition Authority, the state itself was able to help the developer raise upfront cash for construction by leveraging the ERG incentives. However, current public-finance law doesn’t allow towns to assist developers with bonds backed by ERG incentives in the same fashion as they can with PILOTs.
Under the bill reviewed by the Assembly Commerce and Economic Development Committee yesterday, the basic concept of the RAB law would be extended to also cover the state’s ERG incentives. And in addition to towns being able to issue ERG-backed financing, county improvement authorities would be permitted to do so as well.
Tried last year
“It is an important piece of legislation,” said Anthony Pizzutillo, speaking on behalf of the state chapter of the NAIOP commercial real-estate organization.
“It essentially leverages the existing ERG program,” said Adam Peterson, a redevelopment attorney who also testified during the hearing yesterday.
Last year, lawmakers in both houses of the Democratic-controlled Legislature tried to advance a similar measure, but they were unable to get it through both houses before the last legislative session ended in early January. So, the bill was reintroduced for the current session, starting from square one with yesterday’s hearing before the Assembly Commerce and Economic Development Committee.
While the legislation is similar to the bill that previously stalled, it should get a major boost from a recent change in leadership in the Assembly. The bill’s primary sponsor is Speaker Craig Coughlin (D-Middlesex), who assumed control of the Assembly at the start of the current legislative session, taking over from former Speaker Vince Prieto (D-Hudson). In the Senate, the bill has been sponsored by Democrat Joe Vitale, also of Middlesex County.
What if developer goes bust?
Only one of the four Republicans that serve on the Assembly committee voted against the bill yesterday, but several raised concerns about how well the towns and improvement authorities would be protected in the event a bond-funded development project went bust.
“This is a complicated issue, and I want to be able to understand exactly where we’re going,” said Assemblyman Anthony Bucco (R-Morris).
While Coughlin wasn’t on hand to field any questions, Peterson, the redevelopment attorney, said the measure would allow towns and authorities to push all the risk into the laps of those purchasing the bonds by issuing what are known as non-recourse bonds. The governments would have the option of guaranteeing the bonds, but they would not be forced to.
“Unless the municipalities, or the bond issuer, takes a separate action to guarantee that debt, it would be non-recourse to the municipality,” Peterson said. “If they want to guarantee the debt, they would have to take a separate authorizing action.”
He also stressed that the EDA would not be on the hook either in the event the developer goes bust.