NJSEA Non-Recourse Bonds ?>

NJSEA Non-Recourse Bonds

Would someone please explain to me in layman’s terms the structure of the financing for the American Dream Mall in the Meadowlands?

The New Jersey Sports and Exposition Authority voted yesterday to authorize $1.15 billion in non-recourse bonds to support the construction of the American Dream Mall by developers Triple Five.

The Daily Record reported several aspects of the deal that I don’t understand.

Why does Wisconsin get a cut?

The issuer of the tax-free bonds is the NJSEA, but the public issuer is the state of Wisconsin.  Why a New Jersey agency would need to cut Wisconsin into the deal is one question.  Tax–free bonds offer the debtor an advantage, a significantly lower interest rate.  Because the buyers of those bonds are likely to be New Jerseyans, it means that the state loses the ability to tax interest payments on those bonds.

The bonds are non-recourse.  Bob Yudin, who sits on the NJSEA commission, says that the state and the taxpayers are not on the hook if the mall fails.  Insofar as Triple Five is also seeking private finance in the amount of $1.5 billion, it’s unclear which debt is senior. Where do bond buyers stand in the bankruptcy line?

Special real estate tax deal

The mall will sit on NJSEA (state) land, and is therefore exempt from real estate taxation.  Triple Five has negotiated a PILOT (payment in lieu of taxes) deal with East Rutherford, but it’s unclear if the negotiated amount is the same as if the underlying property were private.  If it isn’t, it gives the American Dream Mall an advantage over nearby malls that sit on private land.  It’s the same controversy that occurs when a commercial hospital competes with a church-owned one.

Not the only tax break

The Star-Ledger reported that the first $390 million collected as sales tax will go towards paying off the bonds.  That is a subsidy.  The New Jersey Treasury loses again.

The competition should be screaming

Two of the nation’s ten most profitable malls are a short drive away.  The Mall at Short Hills is 23 miles away.  The Westfield Garden State Plaza is 9 miles away.  Both, I’m sure, would like to divert $390 million in sales tax collections to pay their mortgages.

The most expensive retail project on Earth

The New York Times reported that the project will eventually cost $5 billion.  To support that will require retail traffic never before seen.

Possibility of a casino

In November, New Jersey voters were asked to decide whether New Jersey should have another casino area “at least 72 miles from Atlantic City”.  That’s a setup for two potential locations: the Meadowlands or Jersey City.

With five casinos already shuttered in Atlantic City, why would one in the Meadowlands succeed?  Because it is closer to New York City, proponents say.  Opponents point out there is already a casino in Queens at the Aqueduct racetrack, a subway ride away.  Will New Yorkers travel to the Meadowlands to gamble?  We’ll see.

The ballot measure to approve Northern New Jersey casinos failed in 2016. We’ll see it again in 2108. The Atlantic City ballot measure failed in 1974 before passing in 1976.

Yes, it’s taxpayer subsidized.

  • $390 million in sales tax collections will go to pay off bonds. A loss to the NJ Treasury
  • No income tax on interest earned by bond-buyers. A loss to the NJ Treasury
  • No income tax on interest earned by bond-buyers. A loss to the US Treasury
  • PILOT tax deal. A potential loss to the Borough of East Rutherford.
  • $80 million in road improvements to serve the complex. A cost to the Transportation Trust Fund and New Jersey taxpayers.
  • $185 million to build rail link to Lautenberg station.  A cost to the Transportation Trust Fund and New Jersey taxpayers

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