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NORTH ARLINGTON, NJ-On Monday here, Gov. Jon Corzine signed the so-called “Anti-EnCap” bill, which establishes oversight on certain public-private projects, into law. After a string of victories in the legislature, the move was a rare defeat for the commercial real estate industry and economic development community that maintains the bill was an overreaction to the controversial EnCap project in the Meadowlands.

Passed in June, the bill sets parameters for contracts between private firms and public entities. It requires that a business receiving $50 million or more in public assistance for a project post a performance bond equal to at least 110% of the publicly funded improvements associated with the venture; and annually file audited financial statements for the project, as well as the business entity itself. Further, the public agency would retain up to 10% of the amount of the funding it doles out until the project is finished and has the right to review the project’s subcontractors. Also included in the legislation is a mandate that for every $5 that comes from a public entity, at least $1 of the total project cost must come from other sources.

The bill was a response to the now-defunct EnCap scheme in the Meadowlands. Originally envisioned as a massive mixed-use project on 800 acres of closed landfills that included everything from golf courses and retail to residences and office space, the developer–an affiliate of Raleigh, NC-based Cherokee Investment Partners–halted the venture after a series of cost overruns and delays, eventually filing for bankruptcy in May. What made the collapse more troubling was the fact that the state and Bergen County had parceled out nearly $50 million to the developer.

“The intention of the law is noble,” says Ted Zangari, a Newark-based redevelopment law attorney with Sills Cummis & Gross. “No one wants to see the kind of waste and abuse [by EnCap] that was documented by the state auditor. But the new law is misguided in a number of ways, beginning with the requirement of a 110% performance bond. Let’s not forget that performance bonds were in place on the EnCap project and yet completion of site work is far from a sure thing.”

According to Michael McGuiness, CEO of the New Jersey chapter of NAIOP, the law does permit the governor or the state treasurer to exempt projects that receive a “qualified employment incentive facility,” which includes many of the programs in the recently passed Economic Stimulus Act of 2009, such as the Business Retention and Relocation Assistance Grant Program, the Business Employment Incentive Program and the Urban Transit Hub Tax Credit program. However, the law does not specify the Economic Redevelopment Growth Grant initiative. “We are optimistic that we can at least get the treasurer and the governor to recognize that within their discretion, they can broaden [the exemptions] to include projects that receive funds from the ERGG program that was recently signed into law,” he says.

BEIP and ERGG were mentioned as two of the incentive programs offered to the Depository Trust & Clearing Corp. in its move from Lower Manhattan to Jersey City. “That would be the type of project that could be affected by this Anti-EnCap bill,” McGuiness says. “It would lose the benefits of the ERGG by having to comply with the Anti-EnCap law.”

State Senator Raymond J. Lesniak (D-Union) has wanted the governor to amend the bill. Although he was pleased the programs in the stimulus bill he introduced are exempt, he says the just-signed law will hinder future public-private projects. “The performance bond requirement alone, since performance bonds are no longer available, would preclude any public-private developments,” he says. “I’m not concerned, however, since most public-private developments can move forward under my stimulus legislation to which it does not apply.”

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