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Both Sides Get It Wrong On Permit Extension Act

Extension of Zombie Permits A Form of Consumer & Investor Fraud

Prolonged Day of Reckoning Impedes Market Correction

Today (6/25/12) both Houses of the Legislature are scheduled to vote on – and likely again pass – the Permit Extension Act. (S743 [3R]). The bill would extend the 2008 extension, reaching back to permits issued 10 years ago.

And of course, Governor Christie – our “regulatory relief” “job killing red tape” sloganeer in Chief – will sign it into law (and regulations are a “hidden tax” don’tcha know!)

The debate on this bill has been as bankrupt and corrupt as the real estate and banking interests backing it.

The development community and business groups strongly support what they view as an economic development measure:

The poor economic climate has severely affected the state’s banking, real estate and construction sectors. Businesses cannot easily obtain financing under existing economic conditions and in some cases are forced to delay scheduled projects that have already been approved by a government entity and granted permits. Such delays result in some of these permits expiring before the projects are completed. Given that the permit application process is extremely time consuming and expensive, it makes sense to allow additional time for stalled projects to be completed.

(the Chamber of Commerce doesn’t want to tell you why they can’t get financing – but it has nothing to do with permits and DEP regulations, and a lot to do with lack of demand and over-supply).

Similarly viewing the bill as likely to spur development, environmentalists strongly oppose the bill – here is their Alert:

This bill will allow out-of-date development projects that no longer meet current health, environmental protection or design standards to go forward. Developers will not be required to modify old projects to comply with modern, up-to-date requirements, including state environmental regulations, current zoning and municipal ordinances.

The bill waives fundamental protections for the community, public safety and the environment.

Even worse, the bill undermines protections for the Highlands Region contained in the Highlands Act and the Highlands Regional Master Plan.

Last week,  the bill was amended on the Senate floor to delete the Highlands and rural and environmentally sensitive areas designated under the State Plan. So legislators are being told that the environmental compromise has been made.

But both sides in the debate share the false premise that the bill will spur otherwise dead development projects to proceed.

They both completely miss the real issues.

The bill will not promote real economic development or harm the environment.

The bill continues the real estate and financing fraud that caused the economic collapse.

The real objective and impact of the bill are hidden in plain sight, in the legislative findings – read the bill!

Amazingly, confusing cause with effect, the bill actually implies that the expiration of permits is the cause of the bursting of the real estate bubble  (i.e. losses are tied to “as permits expire”).  Based on that incorrect assertion – permit extension would perpetuate the fraud at the core of the collapse.  

Here it is – hidden in plain sight – yet these false assertions and fraudulent objectives have gotten absolutely no attention in the debate on the bill:

i. Financial institutions that lent money to property owners, builders, and developers are experiencing erosion of collateral and depreciation of their assets as permits and approvals expire, and the extension of these permits and approvals is necessary to maintain the value of the collateral and the solvency of financial institutions throughout the State.

j. Due to the current inability of builders and their purchasers to obtain financing, under existing economic conditions, more and more once-approved permits are expiring or lapsing and, as these approvals lapse, lenders must re-appraise and thereafter substantially lower real estate valuations established in conjunction with approved projects, thereby requiring the reclassification of  numerous loans which, in turn, affects the stability of the banking system and reduces the funds available for future lending, thus creating more severe restrictions on credit and leading to a vicious cycle of default.

Erosion of collateral and depreciation of assets is a result of the bursting of the real estate bubble, not the expiration of permits. That bubble was created by massive fraud.

If permits for projects that are not financially viable – that lack market demand or financing – are extended, that action merely delays the day of reckoning, what economists call “market correction”.

Those “assets” SHOULD depreciate. They SHOULD be revalued. The loans SHOULD be reclassified.

As I previously wrote and testified back in March – failed projects are toxic assets that should be allowed to die, not receive a “regulatory bailout” provided by permit extensions:

By extending approvals for toxic assets (failed real estate projects for which there is no market demand and no financial viability) the bill would perpetuates a systemic failure in accountability, governance, and regulatory and market failures.

Extension of these permits for non-viable projects sends consumers and investors false signals, and thus becomes a form of the same fraud that caused the real estate bubble to form and the economic collapse when that bubble burst.

Extension of permits for non-viable projects maintains false and grossly exaggerated asset values and real estate appraisals. 

This distorts the market and banking and finance and thus becomes another form of fraud. Failed assets need to be written off and uneconomic projects terminated.

On top of the fraud, the bill fails to address the underlying economic issues that are causing the current extended recession cum depression, and jobless recovery.

More strategies to promote false real estate values and sham finance will not create effective demand required to spur investment in real projects and create a jobs based economic recovery.

We’ll let you know how the vote goes. Stay tuned.

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