The Confusing Financing Plan That Could Revive The Former Xanadu

The butt of jokes and a source of statewide embarrassment, the unfinished former Xanadu complex in the Meadowlands looms as a testament to big plans gone awry.

Now, as part of an attempt to salvage the colossal project and transform it into a point of pride and prosperity, Bergen County officials are mulling a complicated and unprecedented financing proposal.

"I have an MBA from an Ivy League Business School, and I couldn't quite understand what they were doing,'' said State Sen. Robert Gordon (D-38), who has been among the critics of the proposed financing. "There are a lot of questions about the taxpayers' exposure in this.''

Even supporters of the proposal say the series of transactions needed to raise more than $250 million for the project's revival is convoluted, confusing and has never been done in Bergen County.

The process starts with the Borough of East Rutherford selling bonds and using the annual payments it gets in lieu of property taxes from the New Jersey Sports and Exposition Authority as security on the debt. The authority owns the land on which Xanadu, now dubbed "American Dream," is built upon.

After the East Rutherford bond sale, the Bergen County Improvement Authority sells bonds to pay off East Rutherford's debt. After that, a Louisiana non-profit sells bonds and pays off the BCIA's debt. Next, a public financing agency in Wisconsin sells bonds to pay off the Louisiana non-profit's debt.

Finally, the Wisconsin ageny passes the funding onto Triple Five - the American Dream development firm that Gov. Chris Christie has picked to take over the project.

Ultimately, Triple Five, which has offices Minnesota, Las Vegas and Alberta, would put up the money to make sure East Rutherford continues to get its payments in lieu of taxes (PILOT) for the Meadowlands property. Part of that PILOT money gets passed on to Bergen County to cover taxes on the property.

All of the transactions would be done virtually simultaneously to ensure that neither East Rutherford nor Bergen County taxpayers were on the hook for the debt, said Bergen County administrator Edward Trawinski. Each step is necessary for various reasons predicated on bond and tax laws, officials said.

"My head was spinning,'' Trawinski, a supporter of the plan, said when asked to recall the first time he heard Triple Five's financing proposal.

On top of the money being borrowed through Bergen County, Triple Five also is seeking several hundred million dollars in financing through New Jersey's Economic Devleopment Authority and is in line to get $200 million in tax breaks from the state. Neither of those deals is quite as intricate as the multi-step financing that starts in East Rutherford.

"It's a pretty unique set-up, to say the least,'' said Robert Garrison, the county improvement authority's executive director."But it's also one of the most unique projects. There are only two other ones like it in the world.''

Triple Five's West Edmonton Mall and its Mall of America in Bloomington are generally regarded as the largest enclosed malls in North America. Some of its plans for the Meadowlands would include indoor skiing, an indoor water park and miniature golf.

The finance structure was proposed by Triple Five's bond lawyers, officials said, with each entity involved in the deal essential for one reason or another. East Rutherford, for example, is important to the sequence because of the payments it gets from the sports and exposition authority, officials said. The improvement authority helps with its AAA bond rating. The Louisiana non-profit provides the transition with tax benefits from its charity status.

In the end, Trawinski said, it's the Wisconsin financing agency and its investors who take the risk in the deal.

"There was fierce competition between Wisconsin and Minnesota as to who would ultimately issue these bonds,'' said Trawinski. "Minnesota was interested because they knew Triple Five in Bloomington and they knew the risk involved is not the routine risk'' because of the company's successful track record.

But Jeff Tittel, executive director of the Sierra Club of New Jersey, calls Triple Five's plans "The American Scheme.''

"It's all a house of cards, a Ponzi scheme that's going to come crashing down on the taxpayers,'' Tittel said. "If the project is a good project, it should be able to get its financing on its own without any government involvement. It wouldn't need all these different steps.''

Tittel argues that the taxpayers ultimately are at risk if the project gets completed, opens for business and falls short of its financial expectations.

In no way would Bergen County or its improvement authority provide a guarantee on the bonds for the project, Trawinski said.

"How are they not on the hook? Somebody has to be on the hook,'' said former Gov. Richard Codey, a Senator from Essex County. "This whole financing structure has to be nailed down. There can't be any way the public ends up holding the bag for any of that money.''

Trawinski said the quick succession of transaction would "all be done within an hour" and include escrow agreements to protect the various entities along each step of the process. None of the intermediary parties would actually borrow money for each transaction, but simply pass along the paper to the next entity.

Bergen County Executive Kathleen Donovan did not respond to phone messages seeking an interview on the American Dream. Her chief of staff and spokeswoman, Jeanne Baratta, said Donovan has long been a fan of the Triple Five proposal.

Baratta said the project was attractive to the county as a way to stimulate economic development and create jobs. Trawinski said the financing agreements would include provisions to ensure that Bergen County residents get a fair share of those jobs - both during construction and during operation.

"She sees it as a tremendous opportunity,'' said Baratta. "Triple Five has a phenomenal reputation. They're a substantial company that has done all the proper research.''

Moreover, Baratta said Donovan would not support any financing structure that put Bergen County taxpayers at risk.

"We don't want a repeat of EnCap,'' she said of the notorious Meadowlands projects that cost state taxpayers $50 million. "The people of Bergen County still have a bad taste in their mouth from EnCap.''

Under the two previous developers who tried to make the mall-recreation complex once known as Xanadu work, the state of New Jersey and its agencies played the lead role in terms of public assistance in the financing.

That remains true under Triple Five. Part of that comes from the $200 million in tax credits.

"There's no direct public resources being provided,'' said Sen. Ray Lesniak, a Union County Democrat who sponsored the legislation paving the way for Christie's American Dream plans.

On top of the complicated funding arrangement, there's also a financing proposal involving parking revenues at the American Dream that must go through the state's economic development authority.

Triple Five has not yet submitted a formal proposal on the bonding to either East Rutherford or the county improvement authority, officials said.

New Jersey is new territory for Triple Five and company officials hired veteran Garden State consultant Alan Marcus to teach them the lay of the land.

Marcus's government and political work dates back to the creation of the state's Meadowlands district in the late 1960s and his friendship with Donovan is well known, something that raised eyebrows among the project's critics.

In addition to handling Triple Five's public relations tasks in this region, Marcus said his main job has been to wise up the Midwesterners on the Jersey mentality.

"They thought everybody in New Jersey loved New York, I had to tell them that, no, we hate New York,'' Marcus said. "They didn't realize that most people in Bergen County don't even think of the Meadowlands as being part of Bergen County.''

Marcus said that he stopped doing most lobbying work a decade ago and said that his job does not entail schmoozing Donovan to get her support on the Triple Five project. 

"I find that question insulting to myself and to Kathe Donovan,'' he said.

After Donovan was elected in 2010, 19 businesses offered to hire his firm to lobby the new county executive, Marcus said. He said he turned down $2 million in revenue from the firms.

Triple Five, Marcus said, never mentioned his connections with Donovan when the company asked him to work for its American Dream.

"Nobody knows the Meadowlands like I do, that's why they came to me,'' Marcus said.