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Bill to allow ERG bond financing nears vote

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Ted Zangari
Ted Zangari - ()

The state assembly is set to vote Thursday on a bill that would allow developers to issue bonds backed by commercial development grants from the Economic Development Authority.

The bill, known as the Economic Redevelopment and Growth Financing Bond Act, would allow developers to generate cash upfront by issuing bonds backed by ERG Grant awards, as well as extend the time to complete projects under the Long Term Tax Exemption Law.

“This was one of the Smart Growth Economic Development Coalition's concepts going back to our original package of bills in the first iteration of the coalition in the late part of the Corzine administration and early Christie administration,” Ted Zangari, member of Sills Cummis & Gross PC, said in an interview. “We’re delighted that it’s finally starting to move.

“Speaker [Craig] Coughlin, D-19th District, has been foursquare behind this effort from Day One and we're just delighted that the bill is finally getting traction. It almost made it to the finish line in the last session. It came very close, so were we’re optimistic that it will pass fairly swiftly.”

Zangari said the bill would have a similar effect to the Redevelopment Area Bond (RAB) Act at a state level.

“What this bill, A2041, would do is allow developers to monetize their commercial ERG award upfront with the cooperation of the host municipality, which would be able to issue bonds secured by a pledge of the ERG grant,” Zangari said. “But this is not automatic; the municipality would have to go along just like it has to go along with effecting a Redevelopment Area Bond in tandem with a PILOT [payment in lieu of taxes]. It would be a similar coupling.

“Right now, towns give out PILOTS for projects that are in need of extra funding but a PILOT merely provides property tax releif down the road after the project is completed, and that by itself is usually an inadequate incentive. The town can wrap around RAB to a PILOT, with a PILOT payment being utilized to pay off the bond. In a similar fashion, with the town’s support and cooperation, a bond would be wrapped around the ERG award itself. The redeveloper would get the proceeds of the sale of the ERG bonds and the annual ERG grant would pay-off the bond holders over those 10 years.”  

Zangari said the advantage to this method is it allows developers to monetize their ERG awards more quickly as they are paid out over 10 years.

By being able to issue bonds backed by the state grant, Zangari said, redevelopers will have the ability to actually close their financing gap rather than receive an award over a period of time.

But the bill does come with limitations, Zangari said.

“Towns will have no exposure unless they decide to take a separate action and back the bonds,” he said. “The bondholders are still exposed because payment of the annual ERG payment over 10 years is based on new state revenue generated by the project, sales tax and so forth. If the revenue generated by the project is not as great as had been anticipated when the award was granted, the ERG payment for a particular year, if the revenue is not there, could end up being inadequate to satisfy the bond repayment obligations.”

Zangari said the bill amends long-term tax-exemptions for multi-phased projects, too. Under the current law, a project of two or more phases does not see full, long-term tax exemption for all phases.

Under the proposed law, each phase of a multi-phased project would see tax exemptions begin at the time they are completed and operational, Zangari said. 

State Sen. Joseph Vitale, D-19th District, has prefilled a sister bill to the senate’s Economic Growth Committee, according to Anthony Pizzutillo, a public affairs consultant for NAIOP New Jersey

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Mario Marroquin

Mario Marroquin

Mario Marroquin covers real estate. A native of El Salvador, Mario is bilingual in English and Spanish. He graduated from Penn State University and worked in Pennsylvania before moving to New Jersey. His email is mariom@njbiz.com.

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