The Casino Reinvestment Development Authority ignored its own policies when it succumbed to pressure from former Gov. Jon Corzine's administration and lost nearly $4 million in a bad loan to another state agency.

Corzine's administration pressed the agency responsible for reinvesting casino dollars to make the loan, former Executive Director Tom Carver said. The loan helped a Democratic Party contributor and Corzine adviser to buy an affordable housing complex in Elizabeth, Union County.

"It was clearly indicated the administration wanted this to be accomplished. And we did that," Carver said.

Irregularities were evident even before Atlantic City-based CRDA provided the interest-free loan in June 2009. The money went to the state Department of Community Affairs, which facilitates housing and development in New Jersey.

Payments on the loan were missed from the very beginning and in December 2010, the CRDA agreed to forgive nearly all of the loan when the DCA couldn't repay it.

Corzine, now CEO of financial firm MF Global Inc., said through a spokesman that he "has no recollection of the development in question and would not, as a rule, have been personally involved in DCA's project management."

In response to the acknowledged mistakes, the CRDA is strengthening internal policies to require grantees, borrowers or other partners to document that a third party has reviewed a prospective deal.

The loss deprived the public of $3.6 million that could have financed community projects, which is the purpose of the casino reinvestments. Examples of projects that have been funded by smaller amounts include $2 million to improve lighting on the Atlantic City Boardwalk, $1.75 million for freight rail line improvements in Salem County, and $500,000 to revitalize the Buena Vista Township train station.

That didn't happen in this case. Instead, the DCA bypassed other state agencies that must review and approve such transactions. The DCA also guaranteed repayment with a 2.5 percent nonresidential development tax that at the time of the guarantee no longer was being collected. Those terms were accepted by the CRDA.

By law, the Atlantic City-based authority invests 1.25 percent of gross annual revenue from each of the resort's 11 casinos - $1.8 billion since its inception 27 years ago - in public improvement projects in the city, the surrounding area and throughout New Jersey.

CRDA staff questioned the Elizabeth deal in memos and emails obtained by The Press of Atlantic City through the Open Public Records Act. Those documents show the DCA intended to divert the borrowed funds to an affordable housing project in Elizabeth, despite stating otherwise on its loan application.

But the CRDA still went through with the deal. The agencies agreed to a one-year, zero-interest, $4 million loan without penalties for late or failed payments and without other lender protections that CRDA chief counsel Paul Weiss said are standard.

That money was supposed to fund "multiple eligible projects" through a DCA grant program. But the funds ended up helping just one developer - Christiana Foglio, a former state official and a Democratic political supporter - to acquire Elizabeth's Oakwood Plaza Apartments, which she still owns.

Financial arrangements between the DCA and its partners have since collapsed, derailing redevelopment originally planned for the complex, which remains crime-ridden, run-down and without improvements intended to be half-finished by now.

Cash flow issues also mean the loan will never be repaid in full. Instead, the CRDA took $400,000 and forgave the rest, upon the recommendation of the state Treasury last winter.

"A loan of this type is highly unusual, but it was done by a previous administration," Treasury spokesman Andy Pratt said.

Neighborhood in need

At the Oakwood Plaza apartment complex in Elizabeth, two police officers were on duty on a recent afternoon, less than 24 hours after a young man was shot and killed there. They patrol the area all day, every day, because Oakwood is the site of frequent violence, drug dealing and the absence of private security guards.

"A stray bullet don't know nobody. You walk out here and who knows? You might get hit. That's why I don't come out too much," 70-year-old resident Eloise Williams said.

A redevelopment project had rehabilitated another Elizabeth housing complex similar to Oakwood. Union County officials and a development firm, Community Investment Strategies, hoped a redevelopment program could also reverse the fortunes of Oakwood Plaza.

The Oakwood project would require an $80 million investment, providing relatively low returns, as is customary for sub-market-rate projects, said Foglio, president and chief executive of Community Investment Strategies, of Bordentown, Burlington County.

In March 2008, Foglio presented the CRDA with a casino tax-credit financing proposal for Oakwood. Three months later, she floated the idea to Corzine, whom she was advising on housing policy at the time, according to Foglio's resume and a fax she sent to Susan Ney Thompson, then the CRDA's chief operating officer and now its interim executive director.

Thompson and Carver originally said Foglio didn't approach them about Oakwood, but Thompson later acknowledged meeting with Foglio. Thompson rejected the proposal, and Foglio never filed a formal application with the CRDA.

Foglio sought money from other state agencies, including the DCA, where she was also advising Commissioner Joseph Doria on housing at the time.

The DCA also was establishing its Urban Housing Assistance Program at the time, intending to fund it with a 2.5 percent nonresidential development tax signed into law in July 2008.

Four months later, the DCA approached the CRDA about a loan for the program, emails show.

Parallel projects?

The DCA claims it got involved at the request of the CRDA, which could not justify funding a project more than 115 miles north of Atlantic City.

Some officials have criticized the CRDA for funding projects outside Atlantic City and the surrounding area, such as one in Pennsauken, Camden County. Proposed in 2002 as a civic center, the Pennsauken project is currently slated to be a 600-unit residential development. Construction delays mean the CRDA's $16 million commitment remains unspent, and Atlantic County officials have periodically called for the CRDA to take back the money.

The CRDA board has resisted those demands, with some members blaming construction delays on the recession and pointing out the authority's remaining investment is down significantly from the $24 million originally committed.

The Pennsauken deal would have benefited a Camden County Democratic power broker, George Norcross III. He has since sold his stake in the minor league hockey team that would have been based at the civic center.

There are key differences between the Pennsauken and Elizabeth situations. The CRDA never expected to get anything back from Pennsauken because it gave its money as a grant. It was "always (the CRDA)‘s intent to get every dollar back" from the DCA, Carver said.

The CRDA also earmarked funds directly and specifically to the Pennsauken project. With the Elizabeth project, however, the CRDA money went through the DCA, which publicly claimed a generic use for a loan that would benefit multiple projects, despite stating otherwise in emails obtained by The Press.

"Prior to any involvement of the DCA, the project was discussed with and the initial level of funding was committed to by CRDA staff. CRDA staff asked the DCA to undertake the administrative responsibility for the project since CRDA was not focusing on housing projects outside of Atlantic City," DCA spokeswoman Lisa Ryan said.

Ryan did not name the CRDA officials involved, but Thompson denies that happened.

Intent unclear

The DCA formally applied to the CRDA for a "bridge loan" for its Urban Housing Assistance Program in December 2008, just as state lawmakers proposed suspending the nonresidential development tax that funded the program. Citing the crumbling economy, they voted in January 2009 to stop collecting the tax. The program had amassed less than $1.5 million.

CRDA board members were supposed to talk about the loan for the first time at their December 2008 meeting. But CRDA staff canceled the discussion because they had concerns about the proposal, documents show.

The DCA didn't submit documents showing the state Department of Treasury or the state Attorney General's Office had reviewed the loan, prompting fears that both agencies had been bypassed, documents show.

Ryan said the DCA got a supportive opinion from the Attorney General's Office - but not in writing. Attorney General spokesman Lee Moore declined comment.

But official sources familiar with the matter told The Press of Atlantic City that the Attorney General's Office never reviewed the loan.

The CRDA's project management division also flagged the application. The proposal lacked detail and proposed a weak repayment plan, and didn't provide a bond rating, which is key to lenders gauging a borrower's reliability, Carver said and documents confirmed.

Jeremy Sunkett, the CRDA project management director, noted in his review that then-CFO Nancy Wattson ultimately addressed his concerns.

But Wattson herself seemed unconvinced.

"This is a big issue, since we can't put our operating funds at risk. We will need to have a guaranteed repayment source before a loan could be finally approved," Wattson wrote in a December 2008 e-mail to Robert Wright, a manager in the DCA's Division of Housing and Community Resources.

Wright reassured Wattson: DCA would get enough money from another, unspecified legislative appropriation.

When CRDA board members reviewed the loan in February 2009, they were told that the DCA had "projects in the pipeline" awaiting funding in lieu of the development tax. They unanimously approved the $4 million loan to DCA in March 2009, documents show.

Thompson said she isn't sure whether the board knew about Oakwood or that Foglio had already approached the CRDA about financing and had moved on to DCA.

That was clear to Thompson and other CRDA and DCA staffers, however. They referred to Oakwood as the loan's ultimate beneficiary in emails exchanged before either agency approved funding for the project.

Thompson explained the reference by saying that "Oakwood was swirling around the CRDA environment."

Closing the deal

Once the board approved the loan, DCA staff pressed the CRDA to finalize the loan terms and send a check, wire cash or otherwise get them the money quickly. They cited the looming settlement date for Oakwood as the reason for the urgency.

The final agreement left the CRDA without any guarantees that the DCA was legally authorized to use the money and would cooperate with the CRDA, spend the money as promised and complete the project.

"To protect this authority and represent its interests, I would've preferred our standard terms and conditions had been followed," Weiss said. "It's the best opportunity for a sanity check."

Wattson, now retired, declined comment.

Carver said the Corzine administration directed the CRDA to lend the money, but Carver declined to provide further details.

The $4 million loan went straight from the DCA to the city of Elizabeth via a grant marked for the title company handling Foglio's purchase of Oakwood, documents show.

Foglio closed on the Oakwood deal June 24, 2009.

The DCA also planned to give Elizabeth $16.3 million during the next five years to reimburse the Union County Improvement Authority for its contribution to the sale, documents show.

In the end, CIS was the Urban Housing Assistance Program's only applicant and recipient, getting $20.3 million total in DCA commitments. That's more than six times the $3 million maximum a single project was supposed to get under the fund's guidelines.

The money helped pay for the $28.3 million property. Foglio said she made up the difference by assuming the remainder of the existing mortgage.

Foglio describes community development as her "passion". Housing advocates say they hold her work - 36 redevelopments, many geared toward senior citizens, statewide - in high regard.

Married to former Trenton Mayor Doug Palmer, she also previously headed the state Council on Affordable Housing and Home Mortgage Finance Agency. The DCA is closely aligned with those agencies, according to its website.

"I've never run away from the fact that I'm very politically active," Foglio said. "I wish I had the power some people think comes with that. Sometimes people think that creates abnormalities. People return my phone calls in a reasonable period of time - that's the big advantage."

During the past decade, Foglio donated at least $52,000 to Democratic political organizations statewide. Her company has also given $36,520 to Democrats. State Sen. Raymond Lesniak, D-Union, got $8,000, more than any other individual candidate, state Election Law Enforcement Commission records show.

Foglio made a single $21,400 payment to the state Democratic Party during the third quarter of 2009, just after she closed on Oakwood.

Although she said contributions help provide access, she denied they helped secure her the CRDA loan.

"If you look at my true giving profile, it has more to do with ideology than how it benefits me," she said.

Foglio cited her support for candidates in Maryland, where she doesn't do work, as an example. She has contributed at least $24,000 to candidates there since 2006, much of it to Gov. Martin O'Malley, a Maryland Election Center database shows.

Michael Levitt, a principal of the original owner, Oakwood Michaels Development, has donated more than $108,200 since 2003 to Democratic organizations in addition to his company's $53,000 in contributions during the past 13 years.

Things fall apart

The DCA banked on the nonresidential development tax being reinstated to repay the CRDA and cover the UCIA's bond payments. That never happened. The DCA missed its first CRDA payment in July 2009.

Later that month, federal investigators raided Doria's office and home. He resigned immediately, but wasn't among the 44 people charged in the corruption probe.

Wattson, meanwhile, battered the DCA with emails, each trying to get them to repay the loan.

"We have a project waiting on the return of funds. Would it help if I brought some pressure to bear through Treasury?" Wattson wrote in October 2009. She and other CRDA officials later declined to specify the mentioned project.

After months of back and forth, Wattson got word in February 2010 that the state Department of Treasury was taking over the balance of the Urban Housing Assistance Program fund.

She retired a month later.

The UCIA also scrambled amid the DCA's inability to come up with funding: the authority defaulted on the $16.3 million it borrowed to help with the Oakwood purchase.

CIS's Foglio took on the debt restructured over 20 years, although DCA is still listed as the repayment source should she fail to cover the payments.

"A default (also) would've impacted my company dramatically," Foglio said. "All of us, unfortunately, were in the sinking boat together."

The cash flow from Oakwood will go toward repaying the debt. A Union County assessment from 2003 through 2007 determined that the cash flow averaged about $2.6 million.

Weiss, Thompson and Carver each said they weren't aware Foglio was covering the debt of others who stood to lose money on the project.

Moving forward

CRDA's Board of Directors voted Dec. 21, 2010 to forgive the loan.

"It wasn't necessarily to our satisfaction, but it was a decision made with us along with the Governor's Office and state Treasury's office as to how to resolve the issue," Carver said. "We couldn't carry it as a bad debt because that would indicate the state of New Jersey did not pay its obligations."

The board retired twice into closed-session discussions to get the minimum nine votes to pass.

Board members Michellene Davis and Robert Garrison, lame duck appointments by Corzine, cast the only votes against it. Both switched their votes, enabling the measure to pass. Neither responded to requests for comment.

Weiss recently recalled that their hesitation hinged on preventing similar scenarios in the future. Staff and board members decided to strengthen CRDA policy with a rule that would require a written, third-party legal opinion supporting any loan to a public agency and verifying that entity's repayment guarantee. The intent reassured Davis and Garrison, Weiss said.

CRDA board member and Atlantic City Mayor Lorenzo Langford refused to vote.

"To me, it didn't pass the smell test. I wasn't going to sanction something that didn't make sense to me," Langford said. "I just remember feeling very uncomfortable about what they were asking the board to do."

Langford said his questions about the loan and forgiving it were not answered to his satisfaction.

"Sometimes you just go with your gut. And in this instance I'm glad that I did."

Contact Emily Previti:

609-272-7221

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