Editor’s Note: This is the third in our ongoing series on crowdfunding.  We recommend beginning with Part One.

Furlough, downsizing, reduction in services, crumbling infrastructure

In the last few years, these and other similar themes were present in the budget discussions of local government. With New Jersey’s 2% levy cap, local government entitieshave had to prioritize discretionary spending. Applying whatever tools are available just to have a budget with essential services, little is left for capital spending without taking on more debt. In a list of priorities, projects for road repair and purchasing emergency services equipment rise to the top while parks and recreation projects are resigned to a wish list. What if local government had a funding source other than taxes and debt? Could crowdfunding be in the future for local government in New Jersey?

If Assembly Bill No. A291 is passed by the New Jersey Legislature, crowdfunding for local government entities will become a reality. A291 is sponsored by Assemblywoman, Bettylou DeCroce of District 26 (Essex, Morris, and Passaic), Assemblyman, Daniel R. Bension of District 14 (Mercer and Middlesex), Assemblyman David P. Rible of District 30 (Monmouth and Ocean) and Assemblyman Gordan M. Johnson of District 37 (Bergen) and co-sponsored by Assembywomen, Handlin and Tucker and Assemblymen Gusciora, Caputo and DeAngelo. It was reintroduced in January 2016 after being a holdover from the previous session under A3378 and is currently with the State and Local Government Committee.

If passed, the “Government Crowdfunding Act” will authorize all forms of local government entities to conduct crowdfunding for certain government projects. When the local government unit introduces a crowdfunding project for the first time, it must be run as a pilot project with additional projects only permitted if the initial project is fully funded. For each project, the government entity shall develop, evaluate and select proposals for crowdfunding. The proposals developed shall contain the project’s description, the public purpose, the funding amount required, the plans for development and completion and any other information deemed necessary.

Nuts and Bolts

Under this Act, the government entity shall develop and implement a process for:

1. evaluating proposed project’s suitability for crowdfunding and chances of success;
2. selecting projects that will move forward;
3. implementing a crowdfunding effort with an established time limit for raising the project’s target funding amount;
4. disbursing funds raised for allocation to project implementation and development, or as otherwise provided in the act;
5. evaluating and documenting the outcome with respect to each project that received funding;
6. evaluating crowdfunding websites and the companies. Two funding models may be available:
   • Donor-based – Donors receive no payment, remuneration or interest in the project;
   • Investor-based – Investors receive a payment, remuneration, or interest at a future date directly derived from the project once it is complete.

For each project, the government entity shall develop all legal disclaimers, agreements, or information to be provided to donors or investors and shall fulfill all of the financial commitments it enters into as a condition of receiving funds.If the sponsors and co-sponsors of A291 are successful, a local high school just might get that new football field funded by citizens that value local sports or new kitchen equipment for your community center funded by the members of the clubs who use the center. The Government Crowdfunding Act may be what local government needs to move their wish lists into reality.

Some Final Notes

• The Act does not prohibit funding projects from multiple sources of funding which may include crowdfunding, developer contributions or grants.
• Each website used shall designate a time limit for raising the target funding amount. The website shall specify how the funds raised will be distributed if the target is not reached. For donor-based crowdfunding projects, this distribution is to the department in charge of the project for allocation to another project. For investor-based crowdfunding, this distribution is the return of funds without interest to the investor.

In Future Issues

We’ll continue to explore the following questions, among others, in future articles:

• How are not-for-profit agencies fulfilling their wish lists with crowdfunding?
• What risks do donors and recipients face with crowdfunding?

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