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Encap Debacle Looms Over Latest New Jersey Water Fund Plan

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Encap Debacle Looms Over Latest New Jersey Water Fund Plan

Impending Legislative Approval Fails to Address Root Causes of Smoldering Scandal

Trenton — A key committee of the New Jersey legislature has approved financing for a new round of water projects, but this spending plan does not remedy the flaws that led to the Encap fiasco, according to testimony delivered by Public Employees for Environmental Responsibility (PEER).

At a meeting yesterday, the Senate Environment Committee signed off on a four bill package which implements the Infrastructure Trust financing program, clearing the way for a half-billion dollars of new state clean water loans to be issued this fall. This endorsement for extending unchanged current policies occurs just months after an Inspector General’s report laid out causative factors behind the Encap scandal in which the state Department of Environmental Protection provided a $212 million, largely unsecured loan to a project that went belly-up, leaving taxpayers to pay a multi-million tab.

Despite the bath taxpayers took when Encap declared bankruptcy, the Corzine administration is actually increasing reliance on the very techniques that led to the fiscal follies of Encap. For example, it has adopted rules allowing clean water funds to be used for “conduit financings,” “transit villages,” and “transfer of development rights” projects and other high-finance, high-risk projects.

In testimony before the committee today, New Jersey PEER Director Bill Wolfe argued that fundamental features enabling Encap remain. Under the new plan –

  • Clean water funds could be used to subsidize private “brownfields” projects (for example, multi-million dollar loans to big corporations, such as Hartz Mountain and Michelin Tire are on the funding list). In addition, tax-secured loans could still go to new development including projects only tangentially related to clean water purposes – as opposed to upgrading existing deficient infrastructure, despite state Department of Environmental Protection (DEP) estimates of a $16 billion infrastructure backlog;
  • The proposed Trust renewal legislation fails to remedy insider and lobbyist abuses identified by the Inspector General as facilitating the Encap debacle; and
  • The legislation does not address the lax financial oversight of loans found by the Inspector General, such as DEP waiver of loan collateral and security and approval of payments for ineligible uses. Without remedying weak DEP financial controls and insufficient staff to oversee loans, the Legislature leaves the program vulnerable to more financial manipulation and abuse.

“We need to close the cookie jar by prohibiting private use or benefit from Infrastructure Trust loans,” Wolfe commented. “We need to focus state support on priority clean water projects instead of no-collateral development schemes sponsored by Governor Corzine.”

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Listen to the PEER testimony

Read the 2007 PEER letter to EPA asking for oversight

See the 2008 U.S. EPA disclaimer

Look at the Inspector General report

View the Wastewater Infrastructure Trust Intended Use Plan

Examine diversion of water infrastructure funds to development schemes

Review $16 billion backlog of water infrastructure needs

New Jersey PEER is a state chapter of a national alliance of state and federal agency resource professionals working to ensure environmental ethics and government accountability