September 6, 2016

VIA HAND DELIVERY

Michael Ferguson, Chairman
New Jersey Sports and Exposition Authority
Richard W. DeKorte Park
One DeKorte Plaza
Lyndhurst, New Jersey 07071
Re:

Request to Stay NJSEA Resolutions 2016-37 and 2016-38 and Issuance of

RAB and ERG Bonds

Dear Chairman Ferguson:

This firm represents the New Jersey Alliance for Fiscal Integrity (Alliance), a non-profit
501(c)4 advocacy coalition supported by New Jersey taxpayers. The Alliance objects to the plan of the
New Jersey Sports and Exposition Authority (NJSEA) to issue $800 million of PILOT-backed bonds
and $350 million of ERG-backed bonds for a noncompetitive sale directly to a Wisconsin finance
authority on behalf of the American Dream project, and it objects to the flawed procedures the NJSEA
has used to push through that plan as quickly and quietly as possible. Simply put, the NJSEA lacks the
authority to engage in this unprecedented bond sale.
Simultaneous with this submission, the Alliance has noticed the Appellate Division of its
appeal from the NJSEAs August 25, 2016 Resolutions approving the bond issues (enclosed herewith),
and it respectfully requests that the NJSEA stay effectuation of those Resolutions and issuance of the
bonds pending this appeal. The basis for our request for a stay is summarized below and discussed at
greater length thereafter. Enclosed herewith is a thumb drive with this letters exhibits.
1.

The Proposed Bond Issues Are Not Authorized by Statute.

Securitization by another state of the revenue streams from New Jersey redevelopment
programs is not addressed in New Jerseys redevelopment laws; it was never envisioned by the
Legislature; and it finds no expression in the statutory history. In fact, such cross-border financing
may well encourage the proliferation of PILOT payments and tax rebates, both of which are doubleedged swords. For every tax benefit bestowed upon a redeveloper, a concomitant tax burden will be
absorbed by other constituencies. For example, PILOT programs siphon tax support away from local
schools, and ERG programs reduce moneys in the general fund that would otherwise be available for
public projects.
Moreover, not only are the contemplated bond issues ultra vires and harmful to other
constituencies even as they may be helpful to American Dream, but they create an unacceptable risk
for New Jerseys already-challenged credit rating and fiscal reality. If these risky PILOT-backed and

Letter to Chairman Ferguson

September 6, 2016

ERG-backed bonds default, Wisconsin will surely look to collect from New Jersey to make good on
the debts. Contrary to the bland and largely-misleading assurances that these bonds are nonrecourse, the truth is that New Jerseys already unstable credit rating and shaky fiscal reputation will
be further jeopardized.
2.

NJSEA Has Violated Required Procedures to Push the Bond Issues through.

Several procedures followed by NJSEA in seeking approval for and then approving these bond
issues will not survive appellate scrutiny. First, notice for the August 25, 2016 Special Meeting at
which the bond issues were approved was not to delivered to the newspapers to be published 48 hours
in advance of the meeting. Whether by design or circumstance, the draft notice arrived at the
newspapers the same day it was supposed to be published, after the papers had already been printed
and delivered. Therefore, the Special Meeting at which the bond issues were approved violated the
Open Public Meetings Act (OPMA), and any actions taken at the meeting are void.
Moreover, the Resolutions approved at the Special Meeting are voidable for several reasons:
a.

They fail to set forth the essential terms of the bonds, including interest rate and
maturity date, as required by statute.

b.

They fail to explain in detail why the bonds will not be sold through a competitive
process as required by former Governor Whitmans Executive Order No. 26 (E.O.
26), which imposes procedural requirements on public bond issues.

c.

They describe not a negotiated bond sale, which is the permitted alternative to a
competitive sale process if fully explained in the Resolution. Rather, they describe a
noncompetitive, direct sale of the bonds, which is not permitted under E.O. 26.

d.

The structure of the transactions described in the Resolutions is different from the
structure of the transactions as approved by the Local Finance Board (LFB).
Consequently, the transactions presented in the Resolutions lack the approval of the
LFB and cannot be consummated as structured.

3.

Once the Bonds Are Issued, All Objections Become Moot.

Once the bonds are issued, giving back the money should the bonds be found illegal would
create a logistical nightmare and an indelible blot on New Jerseys credit rating and fiscal reputation.
Therefore, any challenges to the bonds must be heard before the bonds are issued. A stay will preserve
the status quo for this purpose. Where the public interest is implicated, as here, preserving the status
quo carries particular weight. See Waste Management of New Jersey, Inc. v. Morris County
Municipal Utilities Authority, 433 N.J. Super. 445, 454 (App. Div. 2013).

Letter to Chairman Ferguson

September 6, 2016
DISCUSSION
1.

The RAB Bond Resolution Violates the RAB Financing Law because It Designates
American Dreams PILOT Payments as Collateral for Another States Debt Issue and Is
Therefore Ultra Vires and Void.

As the NJSEA is well aware, its authority to approve bond issuances under the Redevelopment
Area Bond Financing Law, N.J.S.A. 40A:12A-65, et seq. and its related statutes (collectively, the
RAB Financing Law) is strictly confined for several reasons. First, the NJSEA may not give itself
authority not legislatively delegated. Dragon v. New Jersey Dept. of Environmental Protection, 405
N.J. Super. 478, 493 (App. Div. 2009). And when its actions exceed the authority delegated by the
express terms of a statute, they are invalid. See id. Second, the NJSEA and Borough of East
Rutherford must strictly follow the procedures of the RAB Financing Law because the legislature
enacted it under a narrow exemption to the New Jersey Constitutions prohibitions on preferential and
unequal tax treatment and gifts of public funds to private entities. See N.J. Const., Art. 8, 1, 1(a) and
Art. 8, 3, 2; Weehawken Envt Comm., Inc. v. Weehawken Twp., 161 N.J. Super. 381, 392 (Law
Div. 1978). Third, at least two canons of statutory construction require an interpretation of the RAB
Financing Law that renders the August 25 Resolutions invalid: (i) expression unis est exclusion
alterius provides that, [w]henever a statute limits a thing to be done in a specified way, it necessarily
includes in itself a negative namely, that the thing shall not be done otherwise, see Timber Glen
Phase III, LLC v. Twp. of Hamilton, 441 N.J. Super. 514, 530 (App. Div. 2015); and (ii) plain
meaning construction, which provides that courts must determine the intention of the Legislature . . .
from the words used, i.e., the plain meaning of the statute. See Matter of Pemberton Twp. Mun.
Utilities Auth., 205 N.J. Super. 31, 38 (App. Div. 1985) (internal citations omitted).
Viewed in this context, the RAB Bond offering authorized by the NJSEA violates the letter
and spirit of the RAB Financing Law. Although the RAB Financing Law provides that East
Rutherford may issue bonds itself or through the authority, and that, in the latter event, it may, after
following certain statutory procedures, enter into contracts with the authority and financial
agreements that provide for the assignment, for the benefit of bondholders, of all or any portion of
payment in lieu of taxes N.J.S.A. 40A:12A-67(b), it does not permit East Rutherford to pledge PILOT
payments as security for bonds issued by an agency of another state. To the contrary, the statute
provides that PILOT revenues may be assigned only directly by the municipality or the authority or
the trustee for the bonds as payment or security for the bonds, N.J.SA. 40A:12A-67(c), and the
definition of bonds is limited to those issued by a State entity or authority i.e., an entity
created by State law with the power to undertake a redevelopment project directly or through a State
entity redeveloper. N.J.S.A. 40A:12A-65. Any doubt that the RAB Financing Law permits the
pledging of PILOT payments only as security for bonds issued by a New Jersey entity is eliminated
by legislative history.1

1

The original version of the RAB Financing Law in 2001 was so narrowly drawn that it did not even include
State entity. A.B. 4002, 2009 Leg., 2001 Sess. (N.J. 2001). When that term was added in 2004, it was
carefully defined to include only entities created by State law with the power to undertake a redevelopment

Letter to Chairman Ferguson

September 6, 2016

The pledging of PILOT revenues as collateral for bonds of the WPFA also defies the strong
public policy underlying the RAB Financing Law. (Ex. A.) Although New Jerseys public finance
laws embody a peremptory public policy, in the interest of efficient and economical local
administration of government - the avoidance of waste, extravagance and ill-considered spending, see
Slurzberg v. City of Bayonne, 29 N.J. 106, 114-15 (1959), the RAB Financing Law creates
opportunities for fiscal irresponsibility because the PILOT payments siphon tax revenues from school
districts, which would otherwise receive a share of tax revenues, from counties, which receive only 5%
of PILOT payments, and from the municipality because the PILOT payments are less than what the
taxes would be. Furthermore, as this States Comptroller has underscored, PILOTs create a moral
hazard for municipalities because they may be shielded from the negative revenue effects of the
abatement. While municipalities are incentivized to take greater risk and pursue abatements that may
increase their own revenue intake, the costs are pushed onto counties, school districts, other taxpayers,
and potentially the state through greater state aid obligations. (Ex. L at 6.)
For these reasons, the NJSEAs approval of the RAB bond offering is not only fiscally
irresponsible, but also ultra vires and invalid.
2.

The NJSEA Failed to Give Sufficient Notice of the August 25, 2016 Meeting at Which the
Resolutions Authorizing Both Bond Issues Were Adopted.

In an apparent effort to hide from the public the substantive flaws that plague the financing
structure of the American Dream project, the NJSEA abruptly and tellingly scheduled a Special
Meeting at the close of the summer and just days before a holiday weekend. In its haste, however, the
NJSEA failed to provide sufficient notice under the Open Public Meetings Act (OPMA). OPMA
requires that notice be provided to at least two newspapers in time for publication 48 hours prior to the
Special Meeting. See N.J.S.A. 10:4-8; Lakewood Citizens for Integrity in Government, Inc. v.
Lakewood Twp. Comm. 306 N.J. Super. 500, 510-11 (Law Div. 1997). Yet, the NJSEA did not send
its notice of the August 25 meeting to The Record, the Star Ledger, or the Jersey Journal until 11:23
a.m. on August 23, long after the deadline for publication in the August 23rd edition of each of those
papers. (Ex. D.) Consequently, the Resolutions approved and all other actions taken at the August 25
meeting are invalid.

project and the Meadowlands Commission. S.B. 1564, 211 Leg., 2004 Sess. (N.J. 2004). (Ex. I.) Further
illustrating the hard limitations of the law, the Legislature later rejected an amendment proposed in 2006 that
would have expanded the definition to include other county authorities. S.B. 1927, 213 Leg., Senate Community
and Urban Affairs Committee Reports (Nov. 13, 2006). (Ex. K.)

Letter to Chairman Ferguson

September 6, 2016
3.

The Resolutions Approving the Sale and Issuance of the ERG and RAB Bonds Do Not Set
Forth the Principal Terms of the Bonds and Are Therefore Invalid.

To authorize the issuance of bonds, the NJSEA must pass a resolution, on notice to the public,
that either (i) delineates the bonds maturities, dates, and interest rates or (ii) states a specified
formula or method of determination for them. See N.J.S.A. 5:10-10(d). In addition, N.J.S.A. 5:1010(k) forbids the NJSEAs resolutions from delegating certain powers to NJSEA officers, including the
power to set the amounts and maturities of, and the interest rate on . . . bonds. Id. (stating that the
NJSEA may delegate to such officer or agent . . . [certain powers] . . . provided, however, that the
amounts and maturities of, and the interest rate on these bonds shall be within the limits prescribed by
the authority in its resolution delegating to that officer or agent the power to authorize the sale and
issuance of those bonds).
In the past, the NJSEA has attempted to comply with N.J.S.A. 5:10-10. For instance, on
August 13, 2015, the NJSEA passed Resolution 2015-50 authorizing the issuance of a different set of
bonds in connection with the American Dream Project. That resolution stated that (i) the final
maturity of the Bonds shall not be later than December 31, 2039, and (ii) the maximum interest rate
on the Bonds shall not exceed 9% per annum.
Here, the NJSEAs August 25 Resolutions violate N.J.S.A. 5:10-10(d) because they fail to state
the RAB and ERG Bonds maturities, dates, and interest rates, or specify a method to determine them.
(See Ex. A.) They also violate N.J.S.A. 5:10-10(k) because they delegate to an officer the power and
authority to set, without any limitation, the RAB and ERG Bonds maturities, dates, and interest rates.
(Id.) As such, these Resolutions fail to satisfy the requirements of the NJSEAs enabling statute and
are invalid.
4.

The RAB and ERG Bond Resolutions Violate Executive Order 26 and Are Therefore
Invalid.

E.O. 26 declares that New Jersey authorities bonds should be sold on a competitive basis.
(See Ex. O.) Specifically, it provides that:
The policy of the State generally requiring that all bonds of the State and
its agencies and authorities (hereinafter issuers or contracting
entities) to be sold on a competitive basis is hereby continued.
Id. at 1 (emphasis added). Competitive basis means: the issuer publishes a notice stating general
terms for the bonds; then underwriters submit their bids at the same time; and the issuer selects the
winning bid, which typically is the underwriter that offers the lowest interest cost for the securities.
See Ex. U, SECs Report on the Municipal Securities Market (July 31, 2012) (SEC Municipal
Securities Report) at 17. Key provisions of New Jerseys public finance laws reflect a preference for
competitive bond sales.2 See, e.g., N.J.S.A. 40A:5A-6 (stating that the LFB must consider, as part of

2

This principle, too, serves as the core of former Governor Corzines Executive Order No. 37, which was issued
to implement reforms to increase efficiency and accountability of independent authorities. According to the
preamble, it is imperative that when the State authorities award contracts to vendors, such contracts are
awarded in a manner that is fair, transparent, and designed to ensure that the authorities are obtaining quality

Letter to Chairman Ferguson

September 6, 2016

its review of applications for approval of bond issuances, justification for the proposed or maximum
terms and conditions of a negotiated sale); N.J.S.A. 18A:64A-22.3 (stating that, when financing
state educational projects, bonds or notes shall be sold by the issuer by competitive sales unless the
State Treasurer expressly consents in writing to a negotiated sale of the bonds or notes by the issuer).
Despite the strong preference for competitive sales, which generally achieve lower costs of
capital, E.O. 26 permits authorities to issue bonds through a negotiated sale, but only in certain
circumstances and subject to certain conditions. For instance, when an agency or authority plans to use
a negotiated sale, it must provide justification in support of the decision [that] should not be stated in
general terms, but should be specific to the particular bond sale, and [s]uch findings shall be filed
with the Treasurer within five (5) days of the decision. See E.O. No. 26 at 3.
For a negotiated sale, the issuer selects an underwriter, which assists the issuer with pricing the
bonds, markets the bonds to investors, and then, after the issuer agrees to terms, purchases the bonds
from the issuer immediately prior to reselling them to investors. See MSRB Notice 2012-25 (May 7,
2012) (explaining that MSRB distinguishes the fair pricing duties of competitive underwriters
(submission of bona fide bid based on dealers best judgment of fair market value of securities) and
negotiated underwriters (duty to negotiate in good faith)). As the SEC has explained:
Negotiated offerings appear to be more expensive for issuers than
competitive offerings both in terms of bond yields and underwriter gross
spreads. The experience of New Jersey, which restricted the use of
negotiated offerings, suggests that issuers may be able to realize
borrowing-cost savings by switching to competitive offerings.
(Ex. U at 17) (emphasis added).
Here, the August 25 RAB and ERG Bond Resolutions violate E.O. 26 in both form and
substance. (Ex. A.) First, the Resolutions state the bonds will be sold through a negotiated sale but
fail to articulate any specific justification for why the size and alleged complexity of the bond issue
require a negotiated sale. (Ex. A.) Nor is there any evidence that the NJSEA has since filed with the
Treasurer the requisite findings to support its course of action.
Second, and more fundamentally, based on the August 25 Resolutions, the NJSEAs bonds will
be sold to a single purchaser namely, the WPFA without an underwriter of the bonds. (Ex. A.)
That type of private, direct sale without any competition is not contemplated or permitted under
Executive Order No. 26 and violates New Jerseys policy favoring competitive bond sales.3 See, e.g..
Rumana v. County of Passaic, 397 N.J. Super. 157, 182 (App. Div. 2007) (rejecting proposed
financing of sale of county golf course because improvement authority accepted the Countys offer

products and services at the best possible value. Id. As such, it prescribes a detailed structure for public
contract bidding. See id.
3

If anything, the structure is most akin to a private placement or direct purchase, but that is not permitted under
Executive Order No. 26 for an offering of this size. Further, the August 25 Resolutions do not identify a
placement agent or financial advisor.

Letter to Chairman Ferguson

September 6, 2016

without negotiating the sale price and, therefore, the sale was clearly not an arms-length
transaction) (emphasis in original).
For these reasons, the August 25 RAB and ERG Bond Resolutions violate E.O. 26 and must be
deemed invalid. See Perth Amboy Bd. of Educ. v. Christie, 413 N.J. Super. 590, 598-99 (App. Div.
2010) (stating law that Executive Orders are a well accepted tool of gubernatorial action).
5.

The Project Financing Authorized by the August 25 RAB Bond Resolution Is Materially
Different from the Structure and Method of Sale Reviewed and Approved by the Local
Finance Board; Therefore, the Bond Resolution Is Invalid.


The RAB Financing Law mandates procedural requirements designed to ensure that proposed
project financing through RAB Bonds is fully vetted by the LFB. For example, it states that RAB
Bonds may not be issued absent the LFBs review and approval and, more particularly, after the LFB
specifically solicit[s] comments from the [1] the Office of State Planning and [2] the [NJEDA] [3] in
addition to comments from the public. N.J.S.A. 40A:12-67(g). It also provides for a robust and
expansive notice, comment, review, and approval process. See N.J.S.A. 40A:12-67(g) (e.g., applicant
reimburses the LFB for its reasonable professional and other fees to ensure Board has resources
necessary to fulfill its duties; LFB must consider comments4 submitted and whether issuing
redevelopment area bond will adversely impact financial stability of municipality authoritys service
area). In this instance, however, the NJSEA has undermined this critical review process by obtaining
approval from the LFB of one proposed structure for financing the American Dream Project, and then
authorizing a distinctly different structure in the August 25 RAB Bond Resolution.
A.

The LFB Did Not Approve the Structure of The RAB Bonds Authorized by the
August 25 RAB Bond Resolution.

When public entities like the WPFA and the NJSEA issue bonds, they generally enter into (a) a
loan agreement under which the obligor authority borrows the bond proceeds and agrees to make loan
payments to a "Bond Trustee"; and (b) an Indenture of Trust with the Bond Trustee, under which the
Bond Trustee agrees to receive the obligor's loan payments and distribute them as principal and interest
payments to the bondholders. See, e.g., Wilmington Trust Co. v. Cty. of Allegheny, 640 F. Supp. 2d
643, 650 (W.D. Pa. 2009) (explaining general role of trustee and transactions for conduit-issued
bonds). Additionally, a Bond Trustee, which is a fiduciary of the bondholders, generally will eschew
serving as trustee for multiple offerings that share obligors or security. See 15 U.S.C.A. 77jjj(b).
Thus, in the event that both the WPFA and the NJSEA intend to issue bonds, there will be at least two
Bond Trustees.
Against this backdrop, the material differences between the bond structure proposed by the
NJSEA to the LFB and the structure authorized by the August 25 RAB Bond Resolution are apparent:

August 5 EDA Memo. The August 5 EDA Memo provided to the LFB as part of the
NJSEAs August 4 Application describes the bond transactions as follows: The RAB Bonds are
anticipated to be sold to the [WPFA] in a private sale. [WPFA] would then market the RAB and ERG

4

The publics inability to provide comments to the LFB concerning the NJSEAs actual intended bond offering
is another example of the procedural infirmities that render the August 25 Resolutions invalid.

Letter to Chairman Ferguson

September 6, 2016

bonds in a public sale with underwriting by Goldman Sachs. (Ex. B.) In other words, the NJSEA
represented that the WPFA would sell the NJSEA bonds, not issue bonds of its own. Under this
transaction, there would only be one bond trustee the trustee for the NJSEA bonds because WPFA
would not be issuing its own bonds; it would just be selling the NJSEA bonds. This structure raises a
myriad of questions and problems, including why the WPFA would be involved at all considering the
substantial fee it charges. (Ex. X.) More importantly, it would not, on its face, involve the assignment
of PILOT payments to an authority in another state.

August 4 Application's Executive Summary and Draft Resolution. In the Executive

Summary of the Application, the NJSEA states that [t]he PILOT trustee, which must mean the
NJSEA Bond Trustee for the RAB Bonds, will pay over to the RABs the Debt Service PILOT Share .
. . in satisfaction of the debt service due on the RABs. (Ex. E.) Likewise, the draft Resolution
attached to the Application notes that the Bonds shall be secured by a pledge and assignment of the
portion of PILOTS to be paid to the Authority . . . . (Ex. E.) Through these statements, the NJSEA
represented to the LFB that the Bond Trustee for the RAB Bonds would receive PILOT payments from
the Developer and then pay principal and interest to the holders of the RAB Bonds issued by the
NJSEA. Thus, the Application did not communicate to the LFB that the PILOT payments might be
made directly to a WPFA Bond Trustee or to WPFA Bondholders.

The August 25 RAB Bond Resolution. In stark contrast to the foregoing statements,
the August 25 RAB Bond Resolution states that PILOTs [are] . . . to be paid to . . . the trustee for the
[W]PFA Bonds, which must mean that (a) East Rutherford will assign its rights related to the PILOTs
to the WPFA Bond Trustee, and (b) the Developer intends to enter into a loan agreement or similar
document with the WPFA Bond Trustee that requires it to make PILOT payments directly to the
WPFA Bond Trustee. (Ex. A.) For the reasons explained in Point 1, that violates the RAB Financing
Law.
It also means the LFB did not even consider, much less authorize, the NJSEA (or East
Rutherford) to issue RAB Bonds or execute the underlying financial agreements in the manner
contemplated by the August 25 RAB Bond Resolution. In fact, as bond counsel for the NJSEA
admitted during the Authoritys August 9 meeting held five days after the NJSEA submitted its
Application to the LFB - the structure of the financing for the American Dream Project remained in
flux:
[The structure remained] very preliminary. We are still exploring [the]
structure. No decisions [have] been made . . . .[and they want to] get into
full gear as [they] continue to explore an arrangement relating to both
bonds that's acceptable to the Sports Authority and the State. . . .
That's the structure that's currently being explored, and we're trying to
figure out how all of those working parts move.
(Ex. P.)

Letter to Chairman Ferguson

September 6, 2016
B.

The LFB Did Not Authorize the Method of Sale of the Bonds in the August 25
RAB Bond Resolution.

As discussed in Point 4, a negotiated sale generally involves underwriters marketing of the

bonds to numerous investors ideally, to obtain the lowest cost of capital before the issuer agrees to
pricing and sells the bonds to the underwriter, which then resells them to ultimate purchasers. See,
e.g., SECs Report on Municipal Securities Market (July 31, 2012) at 15 (explaining that underwriters
often arrange a road show presentation to investors as part of their marketing efforts, in which
investors may ask questions about the financing).
Yet, while the NJSEAs Application assured the LFB that the RAB Bonds would be sold
through a negotiated sale, and represented that the NJSEA had designated Goldman Sachs as the
underwriter, and, while the Application stated that the RABs, and the maturities and amortization will
ultimately be determined by the Authority in conjunction with Goldman Sachs [as] the lead
underwriter, (Ex. E), the August 25 Resolution authorizes an entirely different approach. Not only
does it remove Goldman Sachs (or any other underwriter) from the process, but it also reveals that the
so-called negotiated sale will be to a single purchaser. (Ex. A) Selling to a single purchaser lacks
the pricing competition required by E.O. 26. See SEC Release 34-70462 (Sep. 25, 2013) at 165
(explaining activities of underwriters during negotiated sale, including preparation of . . .
presentations related to the issuance and institutional marketing).
Thus, the LFB could not have considered and therefore did not authorize the components of the
August 25 RAB Bond Resolution that violate Executive Order 26 and run contrary to New Jersey's
policy in favor of competitive bond sales. See Point 4. As such, the August 25 RAB Bond Resolution
must be invalidated.
6.

The State of New Jersey Is Ultimately Liable to ERG Bondholders.

The ERG Bond offering for the American Dream project is a product of the State Economic
Redevelopment and Growth Grant Program (State ERG Program), a reimbursement-based program
under which the NJEDA, the State Treasurer, and the developer entered into an agreement (ERG
Agreement) providing, inter alia, that the developer must pay certain project costs upfront and, in
return, the State Treasurer must provide future payments or tax credits (ERG Payments) to the
developer from State revenues directly realized from businesses operating at the site of the
redevelopment project. See N.J.S.A. 52:27D-489f(a) (stating conditions precedent to State Treasurer
. . . pay[ing] to the developer incremental State revenues). Unlike the PILOTs, the ERG Payments are
paid from the States tax revenues and annual appropriations. See N.J.A.C. 19:31-4.1(c).
Although the ERG Financing Law does not authorize the issuance of bonds, it does provide (as
explained below) that Triple Five may pledge its rights under the ERG Agreement with the consent of
the authority and the State Treasurer. N.J.S.A. 52:27D-489i (stating ERG Agreement may be pledged
upon notice to and consent of the authority and the State Treasurer). In fact, the pledging of Triple
Fives rights under the ERG Agreement is a critical component of the ERG offering. Without such
security, prospective purchasers would have no interest in the ERG Bonds. To facilitate the [ERG
bond] transaction, the NJEDA has already assured prospective purchasers that it:
[1] will approv[e] the Applicant's assignment of its rights to receive

Letter to Chairman Ferguson

September 6, 2016

10

annual amounts payable under the ERG award to . . . secure the ERG
Bonds; and
[2] has agreed to limit its remedies [under the ERG Agreement] to
specific performance once the project is operational.
(Ex. V at 6-10.) And, given these assurances, the State Treasurer and the NJEDA will have
enforceable duties to make the ERG Payments to the ERG Bondholders under both state and federal
law.5 See Energy Reserves Grp., Inc. v. Kansas Power & Light Co., 459 U.S. 400, 413 (1983) (When
a State itself enters into a contract, it cannot simply walk away from its financial obligations. In almost
every case, the Court has held a governmental unit to its contractual obligations when it enters
financial or other markets).
Thus, contrary to the NJSEAs public statements, in the event the ERG Bonds are issued and
the State fails to appropriate tax revenues as required by the ERG Agreement (e.g., if the State is
forced to forego making ERG Payments due to other public priorities or a fiscal crisis), the State will
be exposed to claims of the ERG Bond Trustee.
7.

The Legislature Did Not Authorize the Issuance of ERG Bonds.

When the Legislature intends to authorize the issuance of bonds collateralized by the States tax
revenues (or an authoritys special revenues), it includes an express statutory limitation of liability
provision so as to reduce the risk of violating the New Jersey Constitutions Debt Clause and the
potential liabilities of the State. See also New Jersey Tpk. Auth. v. Parsons, 3 N.J. 235, 242 (To bring
the proposed bond issue under the ban of the Constitution it must first appear that the bonds will not
create . . . a debt or debts, liability or liabilities of the State.). See, e.g., N.J.S.A. 52:27D-468
(authorizing municipality to create district agent to issue bonds under Revenue Allocation District
Financing Act).
Here, the absence of these provisions in the ERG Act which no longer even mentions bonds
or the issuance thereof demonstrates that the legislature did not intend to authorize the issuance of
ERG Bonds secured by ERG Payments. See N.J.S.A. 52:27D-489i. That conclusion is supported by
the fact that the legislature is considering S.B. No. 1254, which would amend N.J.S.A. 52:27D-489j (i)
to authorize the NJEDA to use grant proceeds by a developer . . . as payment or security for bonds . . .
[,] and (ii) add numerous provisions related to the issuance of bonds and, more particularly, a
limitation of liability provision. (Ex. Y.)
In fact, even private associations that would benefit substantially from the issuance of bonds
that securitize ERG Payments agree that the current form of the ERG Act does not authorize the
issuance of ERG Bonds. For instance, the Smart Growth Economic Development Coalition

5

Prospective purchasers of the ERG Bonds will undoubtedly seek binding assurances from the NJEDA and
State Treasurer, or otherwise demand very high interest rates. As such, the NJSEAs actions may, in fact,
violate the Debt Clause, especially if the States failure to honor its obligations is determined to violate the
Contract Clause in the federal constitution. See U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1, 18
(1977) (holding that statutory covenant between New Jersey and New York pledging inter-state agencys right
to certain revenue for benefit of bondholders could not be impaired without violating Contract Clause).

11

Letter to Chairman Ferguson

September 6, 2016

complained in a 2010 white paper titled, Economic Development Recovery Strategy for New Jersey,
(the SGEDC Whitepaper), that the ERG Act does not provide a Secure Revenue Stream to allow
bond offerings:
The ERGG program awards grants to the redeveloper of a percentage of
future new tax revenue generated by a redevelopment project; these
grants may be pledged by the redeveloper to its lenders, but a pledge
without a secure revenue stream to make the ERGG payments is of
limited value. The Coalition recommends that the ERGG law be
amended to specifically allow non-State authorities (e.g., county and
local improvement authorities and local redevelopment authorities) to
accept a pledge of ERGG revenues and to be able to issue revenue bonds
based on those pledges. (emphasis added).
Thus, it is clear that the Legislature did not intend ERG Payments to be securitized by the ERG
Bonds, and that the NJSEAs August 25 ERG Bond Resolution is therefore ultra vires.
CONCLUSION
For all the foregoing reasons, the Alliance requests that the NJSEA stay effectuation of its
August 25, 2016 Resolutions and stay issuance of the PILOT-backed and ERG-backed bonds pending
the Alliances appeal from the NJSEAs August 25 actions. In light of the emergent nature of this
application, the Alliance respectfully requests that NJSEA grant or deny a stay no later than Monday,
September 12. If the NJSEA has not acted by then, the Alliance will make an emergent application to
the Appellate Division.
Respectfully submitted,

Enclosures

Thomas R. Calcagni
Calcagni & Kanefsky, LLP