January 1, 1900

Thomas F. Carroll, III

On August 10, 2004, Governor James McGreevey signed into law the Highlands Water Protection and Planning Act, S-1/A-2635 ("the Act"). The Act places hundreds of thousands of acres of land in northern New Jersey off-limits when it comes to development, and it drastically restricts development on hundreds of thousands of additional acres. Understanding the Act is critical for those engaging in real estate development activities in the "Highlands region."

Overview of the Act

The Act creates a new regional development commission akin to the commissions regulating development within the Pinelands and the Hackensack Meadowlands. It establishes the Highlands Water Protection and Planning Council ("the Council"). The Act includes 88 municipalities within the jurisdiction of the Council, i.e., the Highlands region. The Act divides the lands within the Highlands region into the preservation area and the planning area, with the preservation area being more than one-half of the total regulated lands. Municipal adherence to the Act and the Council is mandatory as to the preservation area.

Within the preservation area, the Act immediately either prohibited or severely limited any development of land. Certain interim restrictions are set forth in the Act itself. Those restrictions include the prohibition of any development within 300 feet of any "open water" (defined to include anything associated with water, including wetlands), as well as an impervious coverage limitation of 3% of a lot. The Council will be adopting rules and regulations (with no need to follow the notice or comment provisions of the Administrative Procedure Act ("APA")), and those rules and regulations will then take effect. They will include development limitations such as those just referenced, as well as other limitations that will be unknown until the rules and regulations are adopted. Those rules and regulations will be in effect for one year, following which rules and regulations adopted per the APA would take effect and be in force indefinitely. A "regional master plan" would also be adopted.

Upon the signing of the Act all development within the preservation area became subject to the new restrictions unless nearly all permits and approvals for the development had been previously obtained. All municipalities with land within the preservation area are required to have their local ordinances and master plans reviewed by the Council to determine conformance with the regional master plan to be prepared by the Council.

Development application approvals are also subject to Council review, and can be invalidated by the Council if deemed to be contrary to the regional master plan, the Act, or the rules and regulations to be adopted by the Council. The Act empowers the governor to veto any action of the Council, with no standards being provided for the exercise of such veto power.

The Act raises a number of significant practical and legal issues, some of which are as follows.

Regulatory Taking Issues

As noted above, regulation of land within the preservation area became subject to the restrictions set forth in the Act immediately upon the signing of the Act, some of which are objective and specific, and some of which are subjective and vague. There will follow the adoption of rules and regulations, the content of which is presently unknown. In essence, such lands would be subject to a de facto development moratorium for a period of years until the regulatory climate affecting such lands is settled. This raises the issue of a temporary taking of all lands within the preservation area.

Even after that regulatory climate settles, development of land within the preservation area will either be prohibited outright or be so restrictive as to be nearly non-existent. The 5th Amendment to the U.S. Constitution, as well as our State's Constitution, provide that land may not be regulated into a state of economic inutility without the payment of just compensation. The Act recognizes that its effect will be to drastically lower the value of the affected lands. Indeed, it provides specific standards for the 88 regulated municipalities to receive grants from the rest of the State representing the loss of real estate tax revenues that would accompany the decrease in the assessed value of the affected lands. However, the Act, while making some vague references to the issue of inverse condemnation of lands and the need to pay just compensation, does not provide any specific means or standards to accomplish any such results.

Vested Rights and Investment-Backed Expectations

The Act applies to nearly all existing development proposals in the preservation area regardless of the state of approvals or permitting. Indeed, the only "grandfathering" provided in the Act is very limited, with the intent being that the Act will apply to nearly all developments.

Under the Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq., the acquisition of preliminary sub- division or site plan approval vests a development against the application of changed zoning regulations. Moreover, our law concerning regulatory takings recognizes that a taking may result if the legitimate investment-backed expectations of a land developer are deprived. At the point in time when a developer has acquired preliminary and/or final approval, and perhaps subsequent local, State, county and other approvals as well, an enormous investment has been made and certain expectations have been reached. The Act purports to erase all such vesting and expectations. Not only would the Act do so with respect to approvals obtained for a particular property, it also purports to negate all sewer service areas where the sewer lines have not yet been extended, thereby erasing the considerable sewer service planning and investments that have been made to date by property owners and utilities. All of this raises serious questions regarding constitutionality and fundamental fairness.

Interference with the Mt. Laurel Doctrine

Under the Mt. Laurel line of cases, all New Jersey municipalities have a constitutional obligation to provide for their fair share of the regional need for low and moderate income housing. The Act allows all 88 municipalities within the Highlands to apply to the Council on Affordable Housing (COAH) to reduce their "second round" (1987-1999) Mt. Laurel obligations (even if they have been satisfied already), and further provides that COAH is to decrease reallocated "third round" Mt. Laurel obligations (for the period beginning in 2000) based upon the regional master plan that the Council is to adopt. There is no provision in the Act for reallocating the massive "loss" of the constitutionally required low and moderate income housing that would result from such practices.

Moreover, the Mt. Laurel decisions require the government to make provision for an appropriate variety and choice of housing for all categories of people, including, but not limited to, those of low and moderate income. That should include multi-family housing, without bedroom or similar restrictions, as well as small dwellings on small lots, reasonably priced housing of other types, and, in general, reasonable land use restrictions that do not impose artificial and unjustifiable minimum requirements as to lot size, building size and the like, to meet the full panoply of these needs. There is no provision anywhere in the Act, not even in the Preamble, to address such constitutionally recognized needs outlined in the Mt. Laurel opinions.

Funding Issues

The Act is premised upon the expenditure of an enormous amount of State monies, for things like compensation to municipalities losing tax assessments, grants for revised master plans and fair share plans, and the like, but none of the required monies are quantified or appropriated. Unless and until required monetary expenditures can be identified (or at least estimated), with specific commitments to appropriate the same, the Act is nothing but a "plan" missing an integral component. The Act cannot be implemented at all without knowing whether it is financially feasible, and no one can say at this point whether it is financially feasible. Yet it did, upon enactment, effectively impose a development moratorium.

Uncertainty Over "Planning Areas"

As noted above, municipal compliance with the Act and the Council's regional master plan is optional within the planning area (as opposed to the preservation area). What this means to the regulated community is unknown. We have seen how such "optional" state planning initiatives operate with the "optional" State Development and Redevelopment Plan (State Plan). Municipalities have tended to rely upon the State Plan when it supports their own planning initiatives, and ignore it when it does not. This provides the worst of all worlds-a planning regime where there is no rationality or consistency. The same result would no doubt follow from an optional regional master plan in the Highlands. Due process and considerations of fundamental fairness demand far more than the Act delivers.

Overall Regulatory Uncertainty

Our State has seen a multitude of regulatory initiatives within the past couple of years, all advanced for the ostensible purpose of combating what has been coined "sprawl." Paramount among these was the DEP's new stormwater regulations (effective as of February of 2004), which impose such restrictions as 300 foot buffers near C-1 streams and enhanced stormwater control requirements on all developments. The primary expressed purpose of the Act is to advance water quality, the same goal as the very restrictive stormwater regulations that have just been promulgated. We are witnessing cumulative regulation of land that is contrary to the expectations of those involved in the development of land and contrary to the goal of reducing sprawl. Indeed, the principle effect of the Act, the recent stormwater regulations, and other similar measures is to reduce population density, i.e., increase the minimum lot size for residences. This, of course, results in consuming far more land to house every family, which is something that increases sprawl, rather than reducing it.

It should also be noted that the State Plan, discussed above, has not been fully implemented yet, even though it places the lands of the State within various categories depending upon their suitability for development. While the State Plan has not yet been implemented, we now have a new proposed development categorization system, per the Act, that would do similar things, but in a different way, and in derogation of the State Plan that resulted from years of study. Indeed, there seems to be little scientific basis for the delineation of the areas proposed for placement of land within the Highlands, or for the severe land use restrictions that would be imposed upon those lands.

Developing Within the Highlands

Development within the Highlands region raises certain questions that are unique to the Highlands. Naturally, the first question raised in the 88 Highlands municipalities is whether the land in question is within the preservation area or the planning area. Land within the preservation area is subject to the immediate development restrictions set forth in the Act, as described above (such as the 3% coverage limitation), and the Council may well make development restrictions even more onerous when it issues regulations. If the land is within the planning area, the imposition of development restrictions is less clear, but this will likely change over time as municipalities and the Council work to further thwart development. The process must be studied carefully as it unfolds.

Sewer service areas within the Highlands must also be scrutinized carefully since, as noted above, the Act further restricts the sewer service areas previously approved by the DEP. It must also be recognized that the Act will likely result in further delays in the development process, especially for lands within the preservation area. Moreover, the transfer of development rights (TDR) provisions within the Act must be studied carefully, along with TDR plans proposed by municipalities, to ensure that maximum yield is obtained for all Highlands lands.

Conclusion

The Act is quite lengthy and comprehensive, and any article concerning the same can only scratch the surface. Developers and other real estate professionals with interests in the Highlands are well-advised to become exceptionally familiar with the Act and the ongoing activities of the Council and Highlands municipalities as they continue in their implementation of the Act.

Thomas F. Carroll, III, also a partner of Hill Wallack, is a member of the firm's Land Use Division. He also serves on the NJBA's Land Use and Planning Committee. Chairman of the Board of Directors of the New Jersey State Bar Association's Land Use Law Section, he concentrates his practice in the development application process and the litigation required in the course of land development.