Cash shortfall slows EnCap cleanup again

Cash shortfall slows EnCap cleanup again

Source: Record (Hackensack, NJ), June 6, 2011
Posted on: http://envfpn.advisen.com

Three years after EnCap’s collapse, renewed efforts to seal four contaminated Meadowlands landfills are more than a year behind schedule and running out of cash.

Closing the old dumps, which have despoiled waterways and defied would-be developers for decades, could eventually cost more than $172 million and take until 2014 or later, state officials acknowledged last week in response to questions from The Record.

That is $24 million higher than the price previously set by the state, which had long promised the job would be covered by a $148 million insurance bond. It is also $72 million more than estimates offered by Donald Trump, whose 2008 bid to take over the project was rejected by the state.

Ironically, the latest effort to reclaim the trash-tainted marshes has struggled with some of the same problems that stymied EnCap, whose plan to build a luxury golfing community foundered despite more than $300 million in public financing.

Flawed budgets, poor accounting and mounting costs for lawyers and other high-priced consultants have hobbled the project, according to project records and interviews with key state officials.

The records show that more than a year after taking control of the project in spring 2009, the insurance company American Home Assurance had yet to begin closure work, even as the old landfills continued to leach thousands of gallons of polluted runoff every day.

By June 2010, the delays so frustrated state officials that Attorney General Paula Dow sent a harsh letter to the insurer’s attorney, warning that the company was sliding down the same slippery slope as EnCap.

Dow’s letter scolded AHA for running up “soft costs” on “multiple consultant and engineering firm fees.” She also pointed out that AHA’s best budget estimates lacked the kind of detailed financial backup that marked Trump’s submissions.

It took more than a year for AHA to even submit a basic project schedule, Dow complained.

“The state is concerned that … the project closure may be susceptible to failure … in the same manner that EnCap failed,” Dow wrote. “Exhausting limited funds in this manner is unacceptable.”

Executives of the insurance company were later summoned to Trenton for a meeting with DEP Commissioner Bob Martin and Department of Community Affairs chief Lori Grifa, who oversees all state activity in the Meadowlands district.

“It was a come-to-Jesus meeting,” Irene Kropp, a deputy DEP commissioner, said in an interview last week. “A very strong message needed to be sent.”

After the meeting, officials said, AHA took steps to cut consultant costs and wrapped up a lengthy engineering assessment of the ill-fated project site in Lyndhurst and Rutherford. Actual closure work began shortly thereafter, with crews concentrating on the fragile Kingsland landfill, which had collapsed in places.

But difficulties persisted months after the state scolded AHA.

Only in the past month or two, Kropp said, have the state and the insurer been able to agree on a basic budget and timetable. She said the state also has stepped in to set firm financial benchmarks and take an onsite, day-to-day role in overseeing the project.

Dennis Reinknecht, a top-level DEP veteran, has been named project manager and is now working on “all Meadowlands, all the time,” Kropp said.

“In the past, things were kind of squishy,” Kropp said.

“We didn’t have a firm handle on baseline costs,” she added, saying that sticky litigation and land ownership issues muddied things further. “We were sick of the moving target.

“The state has now set the baseline. The state owns this project, and we’re taking charge.”

Kropp said AHA has responded to the state’s most recent entreaties and is now following orders and meeting marks set by regulators in Trenton.

The company, which is a subsidiary of insurance giant AIG, declined to answer a list of questions about the project and its delays.

“Given the complexity and size of this project, with its many moving parts, we believe the project is moving along reasonably,” AIG spokesman Mark Herr said.

Cautious start

While AHA’s strategy eventually proved too slow and costly for the state, the insurer did have ample reason to be cautious when it arrived in the Meadowlands in early 2009.

The site had been a cesspool of legal and illegal dumping for a half-century. It also was a dumping ground for EnCap and its corporate parent Cherokee Investment Partners of North Carolina. The developer imported millions of tons of contaminated demolition debris and other dirty fill as part of its closure plan.

Consultants for AHA discovered a series of engineering failures and other gaffes left by EnCap. The 1,000-acre site, which largely was unsecured and unmaintained, was badly eroding in places.

Midnight dumpers had invaded the site and left mounds of debris.

New wetlands reclaimed by EnCap had reverted to marsh reeds and, in spots, were choked by uncontrolled runoff and exposed trash. Corrugated plastic sheets installed in some areas were bent or broken, allowing tainted runoff to flow unchecked into creeks feeding the Hackensack River.

Pumps and pipes designed to collect the runoff were broken or missing.

For legal reasons, EnCap’s main contractor, Atlanta-based Mactec, withheld engineering sketches that would have guided field investigators as they retraced EnCap’s steps, state officials said.

The emergency work and site investigation were a big part of AHA’s cost overruns, records show.

State officials say winter weather also contributed to delays.

The project also continues to be bedeviled by contaminants: Officials said they are considering how to deal with PCB-tainted earth in the Lyndhurst landfill. Disposal will be costly and time-consuming, they said.

“We walked into a nightmare; it was a real emergency,” Richard Gimello, an engineering consultant for AHA, said in a 2009 interview. “Before we can set this place straight, we had to make sure we know what is really going on beneath the ground.”

Tap tenants in future

News of further problems at the EnCap site underscores once again that the old Meadowlands trash tracts are a financial black hole.

State officials say that, for now at least, they won’t spend any more public money to seal the dumps. According to the DEP, ground leases from future warehouse and light industrial tenants may be tapped to cover expenses exceeding the $148 million surety bond now paying for the project.

Revenue from imported fill on the site, officials said, could generate $6 million

It was unclear if and when the state might use a second insurance policy, a $36 million fund bought by EnCap. The DEP said it could not comment on the fund for legal reasons.

Several state officials, who declined to be identified, said about $20 million of that policy might be used to settle a claim by Mactec, which had demanded more than $30 million in EnCap-related fees the company contends it was owed.

Both Mactec and the state Attorney General’s Office declined to discuss a possible settlement.

If the state’s $172 million project estimate proves true, the entire amount allotted for EnCap and its successor project is approaching a staggering half-billion dollars: In 2005, the state approved a $300 million package of low- and no-interest loans.

Some of the $300 million loan was used by EnCap to begin sealing the landfill. Some was returned to the state after EnCap went bankrupt in 2008. Bond holders are on the hook for most of that amount, but more than $50 million in public funds are gone for good, the state has acknowledged.

“This has certainly been one the largest and most complex landfill projects of its kind,” said the DEP’s Kropp. “But the difference now is that the state is really in control. There’s a whole new dynamic. We’re going to get this done.”

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