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NJ Biz Article: "State feels railroaded over transit leases"

A friend sent me the following article last week and I have been meaning to share it. The article is from and details how leaseback agreements are effecting NJ Transit and other public transit systems that entered into them with various lending institutions.

The details of leaseback agreements are both fascinating and scary at the same time in the sense that many public agencies enter into them in their attempt to stay liquid and keep commuter costs stable, scary because these leases between public agencies and financial institutions can be “called-in” by the banks that issue them without notice and whether or not the agencies have missed a payments:

Providing financing to a cash-strapped agency usually wins praise, until the bill comes due — and for NJ Transit, that bill could be about $150 million.

Long-term leaseback agreements signed as far back as the 1990s by NJ Transit and other public transit systems gave these agencies much-needed liquidity, but a technicality allows banks funding the agreements to immediately demand compensation even if the transit agencies have not missed a payment.

When AIG and other guarantors lost their top ratings in the wake of the economy’s fallout, the door opened for banks to collect, which prompted federal legislation to keep banks from bleeding the transit agencies dry.

“The American people were asked to bail out some of the nation’s banking titans,” said U.S. Rep. Bill Pascrell Jr. (D-Paterson). “If transportation agencies like NJ Transit are forced to pay banks the dollars they lost due to a change in the tax law, who knows how that could affect the quality of our bridges, tunnels and other parts of our transit system?”

In a typical leaseback agreement, property is sold to a buyer, who then immediately leases it back to the seller. These leasebacks put ownership of buses, trains and rail lines in the hands of banks, but the agreements technically lapse into default if the guarantors lose their AAA rating, with the transit agencies left holding the bag. NJ Transit said it faces some $150 million in exposure under its agreements.

U.S. Sen. Robert Menendez (D-Hoboken) introduced a bill in June that seeks to levy a 100 percent excise tax on certain proceeds collected by banks through such contracts. Pascrell is a co-sponsor of the House version, which is under committee review.

Virginia Miller, senior manager of media relations with the American Public Transportation Association, said up until 2003, the Federal Transit Administration promoted and approved of agencies entering into leasing agreements such as Sale-In/Lease-Out, and Lease-In/Lease-Out. APTA, in Washington, D.C., is an advocate for the public transportation industry.

“It was an arrangement seen by the Federal Transit Administration as a win for the company that got the tax write-off and for the public transit system who received the revenue,” Miller said. At the end of the lease, the transit systems would reclaim ownership of the buses, rails and trains.

In order to get FTA approval, the transit systems were required to establish accounts with highly rated insurers to guarantee the lease payments. “Most of these accounts were on deposit with AIG,” Miller said. Other insurers backing transit systems include Financial Security Assurance and Ambac Financial Group Inc.

Though the agreements provided agencies with money for capital projects, Congress later deemed them tax-avoidance schemes that benefited banks. The deals were stopped in 2003 and, last year, the Internal Revenue Service proposed a settlement of the leases to eliminate future tax benefits while keeping existing deals in place.

In 2008 and 2009, some of the guarantors of SILO/LILO agreements saw their ratings lowered from AAA, triggering the default clauses. Transit agencies fear if lenders exploit this technicality, money needed for transit upgrades would be siphoned away.

Menendez said in a letter to House Majority leader Steny Hoyer (D-Maryland) that he believes legislation is needed to stop banks from gaining “a windfall from the current economic climate” that would put the agencies at risk.

In addition to NJ Transit, Miller said the leaseback agreements affect 30 of the nation’s largest transit systems, which collectively face more than $2 billion of exposure — money those agencies do not have on hand.

“The systems were paying on time what they owed,” she said. “For something that had been spread out through the years, they were supposed to come up with the money right away.”

See article >>> Here

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New Jersey Green Energy Projects Supported by Corzine, Moving Forward

Two New Jersey green energy projects have been getting a bit of press lately. Each project has been support by Governor Corzine and will receive state aid in the form of federal stimulus money and other incentives.

Meadowlands solar farm gets support from Corzine, stimulus:

A plan by the New Jersey Meadowlands Commission to build a 5-megawatt solar farm on a Kearny landfill site — the state’s largest such project — edged closer to reality Tuesday afternoon as Gov. Jon S. Corzine announced $8.5 million in federal stimulus funding for it.

Early in September, the Meadowlands Commission expects to get responses to its invitation in May for requests for proposals for the project, said Brian Aberdack, the agency’s public information officer. The project cost is yet to be determined, and will be “in the tens of millions of dollars,” but the agency had originally asked for $10 million in federal stimulus funds, he said.

The state Board of Public Utilities on Aug. 19 awarded the stimulus grant of $8.5 million for the project, carving it out of $20.6 million of American Recovery and Reinvestment Act funds it has received. At its board meeting that day, it also approved a $4.3 million federal stimulus grant for an NJ Transit solar installation in Kearny, which is another project Corzine announced Tuesday.

The Meadowlands Commission’s Kearny solar farm project is part of its larger plan to generate up to 20 megawatts of renewable energy by 2020 in the Meadowlands District. The commission is the zoning and planning agency of the Hackensack Meadowlands District, a 30.4-square-mile area along the Hackensack River covering parts of 14 municipalities in Bergen and Hudson counties.

The Meadowlands Commission’s solar farm will occupy a landfill of about 35 acres of a 57-acre lot, according to a press note the agency issued in May, when it invited bids to build and operate a grid-connected photovoltaic system. The landfill has been inactive for 25 years, and “settlement has substantially occurred,” the agency said.

If all goes well, construction on the project would start by year’s end, but a completion date has not been finalized, Aberdack said. The selected firm will enter into a 15- to 20-year lease and take ownership of all available tax credits, depreciation and solar renewable energy certificates associated with the project, according to the commission.

In July, New Jersey installed its 4,000th solar farm, making it second only to California in the number of such installations.

Officials tout buoys that capture wave energy off the Jersey coast:

State and local officials joined with Ocean Power Technologies (OPT) Tuesday to recognize the success of one of the Pennington-based company’s PowerBuoys off the coast of Atlantic City.

OPT is a pioneer in wave-energy technology that harnesses ocean wave resources to generate clean electricity.

“This is a celebration of our work in the renewable energy sector and an opportunity to thank the state and federal government for supporting OPT since the very beginning,” said Charles Dunleavy, the company’s senior vice president and chief financial officer. “As we continue to achieve success in both the national and international markets, OPT is proud to have invented, developed, and grow our operations right here in New Jersey.”

The federal and state support, including assistance from the Navy, the U.S. Department of Energy, the U.S. Department of Homeland Security, the state Board of Public Utilities (BPU), the state Economic Development Authority (EDA), and the state Commission on Science and Technology.

The PowerBuoy has successfully operated for three years off the coasts of Hawaii, Spain, Scotland and Oregon.

“Governor Jon Corzine’s comprehensive energy master plan calls for 30-percent of New Jersey’s energy to be generated from renewable sources by the year 2020,” said BPU President Jeanne Fox. “Ocean Power’s PowerBuoy can help us achieve that goal while also building New Jersey’s green economy and putting our people back to work. It’s exactly the kind of business success that the Governor envisions for New Jersey.”

OPT was founded 1994. It is a public company and operates out of a 23,000- square-foot facility. Since its inception, the company has focused on its proprietary PowerBuoy® technology, capturing wave energy using large floating buoys anchored to the sea bed and converting the energy into electricity using innovative power take-off systems.

Commencing in 1997, OPT has conducted ocean trials off the coast of New Jersey to demonstrate the concept of converting wave energy and convert it into electricity. Ocean Power currently has 42 employees in New Jersey and plans to continue its growth.

“Governor Corzine’s commitment to investing in clean energy has ensured New Jersey is able to attract and develop companies like Ocean Power Technologies,” said EDA Chief Executive Officer Caren S. Franzini. “Ocean Power’s innovative technology and talented staff will only help to drive the company’s growth and the creation of more green jobs in the state.”

Franzini noted that EDA, in conjunction with BPU and the state Department of Environment Protection, recently launched Clean Energy Solutions, a suite of financing and incentive programs to further support the state’s effort to promote green job creation and a more environmentally responsible energy future.

For more information on the state’s energy master plan, visit Businesses interested in learning more about all Clean Energy Solutions opportunities should visit

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NJ Biz: State: Private sector added 13,000 jobs in July

Good news on the economic front for Governor Corzine:

“The state Department of Labor and Workforce Development said Wednesday that private sector companies in New Jersey added 13,000 jobs in July, breaking 17 months of consecutive job cuts that stretch back to January 2008.

While the private sector added employees, 7,100 public sector jobs were cut in July as the state’s unemployment rate rose to 9.3 percent, up from 9.2 percent in June.

According to preliminary estimates by the state agency, industry supersectors reporting job growth in July included leisure and hospitality, manufacturing, construction, and professional and business services. The trade, transportation and utilities supersector reported job cuts for the month as did financial activities, education and health services.

A detailed breakdown of the job gains and losses in the state for July can be found at the agency’s Web site.”

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Filed under Gov. Jon Corzine, job growth, New Jersey, New Jersey Department of Labor and Workforce Development,, private sector, public sector, unemployment