NJ's Xanadu: Lessons for Stimulus Spending?

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Billions of dollars in federal stimulus aid is on the way to our region. But while local politicians are applauding the aid, many of the decisions about how the money will be spent will be made by public authorities largely operating out of public view. WNYC's Bob Hennelly takes a look back at the spending decisions surrounding one New Jersey transportation project and asks what lessons it holds for stimulus spending.

Since colonists laid eyes on the awesome beauty that is the Hackensack Meadowlands, this vast estuary has swallowed many get-rich quick schemes. Farmers tried to turn the swamp into farmland. In the industrial era, it became a magnet for toxic waste. By the 70s, public consciousness about the value of the 20,000-acre wetland region was growing. An eco-district was created to protect it. Even so, 750 acres were exempted and bestowed on something to be called the New Jersey Sports and Exposition Authority (NJSEA). It would build a racetrack, arena and stadium on site and ultimately go on to build and manage similar venues across the state.

Fast foward to December 2003. It was a who's who in Jersey politics and real estate. The New Jersey Sports and Exposition Authority was rolling out a proposed 2.2 million square foot entertainment and retail mega plex. It would be called Xanadu.

The new venue would feature a 14-story indoor ski dome for skiing even in August.

XANADU PROMOTIONAL SPOT: With a brighter future for New Jersey, where business and pleasure do mix. With sports and recreation. Where learning is fun. I have been living in Jersey all my life I have never seen anything like this...Where mind and body overcome life’s daily stresses. Where the great outdoors comes inside to plan. Where one of New Jersey’s treasures reclaims the spot light and open space is preserved forever. We can show you the money.

Xanadu was planned as a public private partnership with the Mills Corporation, a national mall developer that was a generous campaign donor to both parties.

On this day in 2003, George Zoffinger, the CEO of the New Jersey Sports and Exposition Authority was facing a triple threat of losing three of the Sports Authority's teams -- the Jets, the Devils and the Nets. Zoffinger used this press opportunity to take a shot at rival Bruce Ratner, who wants to move the Nets to Brooklyn.

ZOFFINGER: Economics are going to drive the process and frankly we took a look at what Mr. Ratner had to say this morning. My contention is that its all hat and no cattle.

But to really ride herd, Xanadu and the Sports complex needed to be tied into the entire regional mass transit network. That December day in 2003, then New Jersey Governor James McGreevy announced a handshake deal with then-Governor George Pataki to have the Port Authority build a rail spur to Xanadu.

McGreevey said it was essential to alleviate regional congestion.

MCGREEVEY: We also understand mass transit is critical to the competitiveness of this site. This will be the premiere family entertainment center in the Northeast of the United States of America. But in order to access this site mass transit is critically important.

The Port Authority of New York and New Jersey was founded in the 1920's as a way to reform patronage-driven public works projects. It's first major project, the George Washington Bridge, came in under budget and ahead of schedule. But in modern times, appointments to the board have been dominated by campaign contributors and developers like Port Authority Chairman Anthony Coscia and Commissioner David Mack.

In February of 2006, long after McGreevey resigned, the Port Authority authorized the bulk of the $150 million. That money was supposed to cover the cost of the rail spur to tie Xanadu into New Jersey Transit rails. Four of the 10 commissioners present, including Chairman Coscia and Commissioner Mack had to recuse themselves. Coscia, represents Xanadu's sponsor, the Sports Authority. Commissioner David Mack is on the board of Mack-Cali, a major Xanadu partner.

By 2006, the groundwork had been laid for the rail spur that would cross almost two miles of these Meadowlands. The Giants and the Jets had to stay and team on a new stadium. But the swamp and its developers had some surprises in store for the Sports Authority. The private partner behind Xanadu, Mills Corporation, came under SEC investigation for accounting irregularities, which brought the company near bankruptcy Later that year, Mills was forced to hand off Xanadu to Colony Capital, a privately held gaming and real estate investment firm.

There'd be another surprise. To complete the path of the rail spur the Sports Authority needed three acres that belonged to the Honeywell corporation. That land was part of a federal superfund site. The Authority purchased 56 acres, at more than $100,000 an acre with the caveat Honeywell would remediate the site. That brought the price tag to the Port Authority-New Jersey Transit spur closer to $200 million.

John Samerjain is the spokesman for the Sports Authority. He sits at its corporate headquarters at the Meadowlands Race Track in East Rutherford.

SAMERJIAN: The good news is when it is done for the millions of people in the Northeast corridor they’ll be able to access it by rail.

The Sierra Club of New Jersey disagrees. Jeff Tittle, executive director, says his group has opposed the whole project, rail spur included. He says public transit projects should be built where people live and work now.

TITTLE: That type of development should be in an urban center like Newark where it would make a lot more sense where there is existing rail, light rail and road networks versus out in a car dependent area that is environmentally sensitive.

Jim Hughes is the Dean of the Bloustein School of Policy and Planning at Rutgers University. He warns that too often when government is trying to target its infrastructure and economic development efforts, it’s several steps behind emerging economic realities.

HUGHES: In 2003, we were in the early stages of perhaps the greatest spending spree in the history of the planet. We lost the distinction between needs and necessities versus discretionary items and indulgences. Right now indulgences are in real trouble. If we look at a Xanadu will that be an indulgence or will it be a necessity?

Hughes says as the government goes about dispensing stimulus funds, it should look with a wary eye at public private partnerships like Xanadu.

HUGHES: On the public sector side there was desperation in order to generate jobs, and at the same time the private sector wants that public sector support in order to lessen its risks in a commercial venture. So we have a fundamental different set of psychology by the two sectors and that’s dangerous.

Just how dangerous is becoming apparent. Legal papers show Colony Capital -- the current private sponsor -- failed to make its November payments on a $360 million loan to creditors. Just two weeks ago, the company had to appear before the New Jersey Casino Control commission to fend off foreclosure on its Resorts International Hotel in Atlantic City.

And Business Week recently reported that some several prospective tenants listed in early promotional material have have not signed leases and told Business Week they had no future plans to do so. A spokesman for Xandu confirmed the Business Week account, but said the site is 70 percent leased and ready to open in August.

Over in his office in the Meadowlands race track, John Samerjian with the NJ Sports and Exposition Authority says Xanadu is still a great bet.

SAMERJIAN: What the public got was, they paid $160 million in 15 years of advance lease payments for building on that property plus they invested over $100 million in environmental clean-up and transportation improvements. So there has been roughly $260 million for the right to put Xanadu up.

Around the track outside Samerjian's office, two jockeys take their horses through their paces while seagulls circle. Inside there are just a handful of retired patrons staring up at banks of video monitors of racing in other cities. By lunch there is a sign of life -- the rush of construction workers from the Xanadu and the nearby, almost complete, Giants stadium.

This story was reported with Michael Grabell of the non-profit newsroom ProPublica, and is part of WNYC's Shovelwatch project. For photos of Xanadu and extra audio, go to the WNYC News Blog.

Next Bob Hennelly investigates what it will take to build the Port Authority’s $9 billion Arc tunnel under the Hudson.