A Resolution to Stay and Grow Stronger
by Jong Sook Nee on January 11, 2012
As we bid farewell to 2011 and the roller coaster of international economic policy, the State of New Jersey wants to help you with a new resolution for 2012. Stay in New Jersey and grow. On January 6th, Governor Christie signed S-3033 establishing the new Grow New Jersey Assistance Program. Grow NJ is a tax credit incentive program for companies looking to move into or stay in New Jersey and make a sizable capital investment. Grow NJ expands on the much-heralded, but under-utilized Urban Transit Hub Tax Credit (UTHTC) incentive program. Similar to the UTHTC, companies that make a certain capital investment in New Jersey and who either retain or create 100 full time jobs can earn up to $5,000 – $8,000 per job for each of 10 years. Unlike the UTHTC, eligibility under Grow NJ is not limited to a few municipalities. Grow NJ expands its reach throughout the State based on planning areas and areas zoned for growth under the State Development and Redevelopment Plan and in various regional planning areas, such as the Hackensack Meadowlands or even BRAC areas.
As noted above, the UTHTC program generated a great deal of interest, but its logistical and technical requirements created hurdles that made it unavailable to many businesses. Will the new Grow NJ program with its generous locational requirements, softer capital improvement thresholds and focus on job retention light the State’s economic engine? We have yet to see. However, if you are looking for a new resolution to cure the economic hangover from 2011, consider Grow NJ. But hurry, you only have until July 1, 2014 to apply.
Redevelopment Teeters on the Cliff
by Edward J. McManimon, III on January 19, 2011
You would think that the last thing the various branches of the State government, already severely challenged by high taxes and shrinking revenues, would want to do to local governments, particularly urban areas, is diminish their powers that provide the best means long term to revitalize their communities on their own while they are adjusting to their curtailed State aid. Yet that is exactly what is happening across the board to the Local Redevelopment and Housing Law.
The Governor imposed a large dose of financial reality on local governments telling them directly to become self-reliant by drastically cutting State aid in spite of their dependence on such State aid in many instances for over 25 years. The financial fallout was immediate and extreme. For communities thinking creatively and long term, this accelerated the hunt for tax ratables and development to shore up their local tax base. The use of the broad powers in the redevelopment laws to forge public/private business partnerships to provide incentives to the developers to locate in their communities was at least some hope. Then the State Comptroller out of nowhere released a superficial report on payments in lieu of taxation with little practical or rational substance concluding that such arrangements are giveaways to projects that in his view would have located in such communities anyway in spite of decades of such property in many cases laying follow and financially unproductive. He apparently presumes that the incredible revitalization of New Brunswick over the past 20 years and similar revitalizations elsewhere throughout the State have happened naturally.
Then to add insult to injury, the Local Finance Board in doling out the diminished local governments “transition aid”, which replaced steady and reliable much larger amounts of State aid, required that any local governments receiving such transition aid must sign a memorandum of understanding that any PILOT revenue derived from such redevelopment projects must be shared with their school districts. Instead of providing much needed municipal revenues, it shares revenues with a school district even if the redevelopment project has no impact on adding school children and in spite of the fact that school districts receive 100% of their budget request anyway regardless of whether any development occurs or not.
On top of that, the New Jersey Legislature decided to weigh in by resurrecting the Rice/Burzichelli Redevelopment Eminent Domain legislation significantly changing much of the flexibility to local governments in the Redevelopment Law in spite of the many judicial decisions which already changed the landscape of municipal options in dealing with their longstanding and unproductive properties.
The Courts, of course, continue to address these issues in a vacuum, one even recently allowing a property owner in one municipality who bought property in a redevelopment area after the redevelopment designation and with full knowledge of the designation and who participated for two years in trying to get the municipality to adopt a redevelopment plan to provide higher densities for his proposed housing than the proposed redevelopment to challenge the redevelopment designation years later, based on the De Rose Case, even though the adopted redevelopment plan actually provided that there will be no eminent domain.
So where does it all go for local governments? No more money from the State, demands to help yourself, continued restrictions on those who try to do just that and lawsuits going on for years with a freewheeling court while the public demands progress. Good Luck.
by Joseph P. Baumann, Jr. on January 7, 2011
In an economic environment where equity is scarce, loans are hard to obtain and grants are virtually nonexistent, the Redevelopment Area Bond Financing Law, N.J.S.A. 40A:12A-65 et seq. (RAB Law) stands alone as the most effective tool available in the much depleted redevelopment “tool box”. Born from the Large Site Landfill Reclamation and Improvement Law, N.J.S.A. 40A:12A-51 et seq., the RAB Law remains the preferred statute when municipalities and redevelopers are faced with significant gaps in their financial models. As a result, redevelopment area bonds (RABs) have become a proven source of “gap financing” in many successful projects.
This form of financing was first utilized in connection with the construction of the Jersey Gardens Mall in Elizabeth, New Jersey, where extraordinary infrastructure costs made an important project financially infeasible without RABs. Since then, RABs have been used to address extraordinary costs associated with commercial, retail and housing projects throughout the State.
While there are many benefits to RABs, two stand out. First, because RABs are secured by payments in lieu of real estate taxes (PILOTs), they remain a very secure investment enjoying a lien on the land and improvements that primes all mortgages and equity. Second, and perhaps more importantly, because they are repaid from the PILOTs, RABs generate a source of funds for a redevelopment project without the need for either the redeveloper or the municipality to “come out of pocket”. In the redevelopers’ pro forma, RAB proceeds are like a grant. From the municipality’s point of view, the dedication of the PILOTs to repay the RABs is a dedication of money the town would not otherwise have without the project. In effect, the municipality foregoes money it doesn’t have.
So, unless or until a better tool comes along, every redevelopment project facing a significant gap in its pro forma should take a hard look at RABs. It is very often the right tool for the job.
Are You Ready for Redevelopment?
by William W. Northgrave on January 1, 2011
The recent resurgence of activity in industrial and commercial markets, with some limited retail and the occasional residential project, makes this the perfect time to make sure that your community is ready for redevelopment. As with the federal 2009 American Reinvestment and Recovery Act (“ARRA”) program, if your community is not “shovel-ready” for redevelopment, developers will make their investments elsewhere.
The initial and most basic step each community should take is to make certain that the designation of any redevelopment area can withstand a legal challenge. There have been a number of recent decisions that may question whether a redevelopment area was properly designated. In Gallenthin v. Paulsboro, 479 N.J. 344 (2007), the New Jersey Supreme Court reviewed the designation of a redevelopment area and found that although the municipality’s designation met the statutory criteria set forth in the Local Redevelopment and Housing Law (N.J.S.A. 40A:12A-1 et seq.)(the “Redevelopment Law”), simply meeting those criterion was insufficient to establish the constitutional “blight” required to designate any area. While not every redevelopment criteria under the Redevelopment Law was challenged in Gallenthin, many of the investigations conducted prior to Gallenthin could suffer from the same infirmity found by the Supreme Court in Gallenthin. If your community has designated redevelopment areas within your borders prior to 2007, the investigation of the study area should be reviewed by your counsel (in conjunction with your planner) to determine the adequacy of the investigation and the findings supporting the redevelopment area desigation.
While Gallenthin questioned the substance of a redevelopment designation, the Appellate Division in Harrison Redevelopment Agency v. De Rose, 398 N.J. Super. 361, 942 A.2d 59 (App. Div. 2008) questioned the process employed to designate a redevelopment area. When undertaking to study and designate a redevelopment area, the Redevelopment Law simply requires public notice as to the date and time an area is to be studied. The court in DeRose found that more notice was required because a property owner would have only 45 days from the date that a resolution designating a redevelopment area was adopted to challenge that designation. That 45-day period could pass well before the property owner realized, many times not until years later, that the designation could lead to the taking of the property by eminent domain. The DeRose court ordered that, unless the property owner (a) was actually on notice as to the impact of a designation (i.e., that the property could be subject to condemnation) and (b) had the opportunity to contest the findings leading to a designation of a redevelopment area, that property owner could challenge the designation at any time. In other words, the property owner would not be time-barred from raising a challenge to the original redevelopment area designation even if the challenge came years later. The problem with that open-ended ability to challenge is that it creates tremendous uncertainty as to whether the vision in the redevelopment plan can be achieved. Further, if the challenged property is the lynchpin of a project (which is common in most, if not all, cases requiring condemnation) the municipality’s ability to implement a comprehensive redevelopment project can be stalled, if not stopped completely.
Understanding the impacts of these recent decisions on the implementation of redevelopment, we recommend a review of both the substantive and procedural issues surrounding the designation of a redevelopment area in order to ensure your community is ready for redevelopment.
It Might be Time to Review Your PILOT
by Jong Sook Nee on December 30, 2010
For years many municipalities have utilized long term tax exemptions to assist in the development of a variety of projects, from affordable housing developments to urban redevelopment. These tax exemptions were provided as a means to make a project financially feasible for the developer by exempting the project from municipal taxes and allowing the developer to make a payment in lieu of taxes (a “PILOT”) to pay for municipal services. There are agreements that have been in existence for as long as 30 or 40 years. Some agreements created under the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 et seq., allowed a certain amount of flexibility in the calculation of the payments in lieu of taxes. For some agreements, the percentage of the total costs might adjust at different rates. In others, the definition of what is included or excluded from the calculation of total project costs or gross annual rents might be different from agreement to agreement. It is generally a good practice to review your PILOT agreements to ensure that the municipality is appropriately calculating and receiving its agreed-upon payments. In many such agreements, the developer or the owner of the project may be calculating these payments. It is far more incumbent in those situations for the municipality to routinely review the annual financial statements of the developer or the owner to ensure proper calculation and collection of the PILOTs.
Green Building Codes and Redevelopment
by Jong Sook Nee on December 7, 2010
Green building codes and standards are receiving a lot of attention lately. Many public officials, developers and members of the public are passionate about “going green” and for good reason. Alternative and renewable energy sources make headlines for their reported ability to lower individual energy costs while reducing our dependency on fossil fuels. Green building standards such as the U.S. Green Building Council’s Leadership in Energy and Environmental Design or “LEED” claim to provide third-party verification of energy savings, water efficiency, CO2 emissions reduction and improved indoor environmental quality. Instilling a mindset to reduce energy consumption, reduce construction waste, incentivize alternative energy usage and encourage recycling are excellent goals from a municipal perspective, as well as a more global perspective. We are often asked whether municipalities can and should impose green building standards in redevelopment areas.
Redevelopment areas provide an opportunity for particular development standards, since the redevelopment designation allows the municipality the chance to redefine the zoning standards for a discrete area. To this end, redevelopment areas could be the perfect breeding ground to test a new green building policy for private development. Municipalities, however, should consider the full implications of imposing green building standards in a redevelopment context.
This is not to say that no municipality should ever consider adopting a green building standard. On the contrary, some municipalities have adopted such standards as part of a municipal green building policy. As a policy that is part of the redevelopment plan, the municipalities state their goals for green building and provide developers with options on how to meet those goals. In this way, developers are made aware that the municipality favors redevelopers who are sophisticated in green building techniques, while not tying the hands of the municipality in the event some projects cannot feasibly or economically meet the green building standards. The municipality can incentivize its policy by expressing a preference for proposals by redevelopers who have experience with and will utilize green building practices, offering waivers of certain municipal fees (water/sewer connection, planning board application, etc.) for green developments or offering financial assistance. By including green building standards as a municipal policy and incentivizing compliance to the standards under a redevelopment plan, a municipality can continue to promote its green building agenda without limiting its redevelopment potential.
by Jong Sook Nee on October 9, 2010
The State’s favorite punching bag – The Council on Affordable Housing – recently suffered another setback when an Appellate Court invalidated a portion of its third-round rules again on October 8, 2010. In the Matter of the Adoption of N.J.A.C. 5:96 and 5:97 by the New Jersey Council on Affordable Housing analyzed portions of COAH’s third-round rules relating to the provision of affordable housing and struck down COAH’s build-as-you-grow policy known as “growth share”. Growth share was a major component of the third-round rules, and the invalidation of the policy will require another overhaul of the COAH rules. Municipalities can expect to see a return to the projection of affordable housing for the state and an allocation of that projection to each municipality. Municipalities should also be aware that the court rejected attempts by COAH to accept the good intentions of a municipality to develop 100% affordable housing projects and required actual proof of such development plans in order to be counted. Further, municipalities will lose any bonus credit for construction completed while the third round rules were being revised by COAH. The court’s opinion signaled a frustration with the slow pace of affordable housing under the third-round and also a strict view of the municipal obligation to provide for a realistic opportunity for affordable housing.
Municipalities should be aware that the court did not impose a stay on all proceedings. Any stays must be sought directly with the court or COAH and will be granted on a case-by-case basis. While the October 8th opinion created a vacuum in the State’s affordable housing policy, municipalities should seek legal and planning advice to determine the best course to meet their constitutional obligation.
Jong Sook Nee, Blog Editor
Jong Sook has spent many years of her practice devoted to understanding all aspects of redevelopment in New Jersey. As editor of this blog, Jong Sook will provide commentary on redevelopment as it develops in New Jersey. Read More
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