January 1, 1900

Kenneth E. Meiser

Although the New Jersey "State Plan" is officially titled the State Development and Redevelopment Plan, some have characterized the present administration's position as "No Development but Redevelopment." The Big Map, which may become the foundation for the next State Plan, proves strong support for this characterization.

In the meantime, municipalities are moving forward with redevelopment plans, some with a great deal of controversy. For example, tiny Helmetta, with a population slightly in excess of 1,800, is seeking to redevelop an abandoned snuff mill, which was the primary place of employment in the town. Some neighbors have publicly expressed concern that this redevelopment will result in subsidized housing. At the other extreme, a private developer has announced redevelopment plans for a $1.2 billon project in the Cramer Hill section of Camden. The plan would transform a landfill site into the location for 5,000 homes, an 18 hole golf course and a "retail renaissance." It appears that this will require the demolition of hundreds of homes, including two public housing projects. There are indications that the State will provide millions of dollars in financial support. Clearly, the current administration would love to see a large percentage of New Jersey's housing needs met in Cramer Hill type locations. More quietly, innumerable redevelopment projects are going forward throughout the state. This article summarizes some of the recent changes in the law affecting redevelopment opportunities.

New Grounds to Facilitate Redevelopment

Last summer, the Legislature, with extraordinary speed, enacted a 21-page amendment to the redevelopment and long-term tax exemption laws, P.L. 2003, Chapter 125 (the Act). The New Jersey Local Redevelopment and Housing Law, N.J.S.A. 40A: 12A-1, lists a number of eligibility criteria, and an area qualifies for redevelopment if any one of the criteria is satisfied. The first standard is whether the buildings in the area are "substandard, unsafe, unsanitary, dilapidated or obsolescent, or possess any of such characteristics, or are so lacking in light, air, or space, as to be conducive to unwholesome living or working conditions." The second is "the discontinuance of the use of buildings previously used for commercial, manufacturing, or industrial purposes; the abandonment of such buildings; or the same being allowed to fall into so great a state of disrepair as to be untenantable."

Third, "land that is owned by the municipality or unimproved vacant land that has remained so for a period of ten years and that by reason of its location, remoteness, lack of means of access to developed sections or portions of the municipality or topography, or nature of the soil, is not likely to be developed through the instrumentality of private capital" qualifies. The fourth standard encompasses "areas with buildings or improvements which, by reason of dilapidation, obsolescence, overcrowding, faulty arrangement or design, lack of ventilation, light and sanitary facilities, excessive land coverage, deleterious land use or obsolete layout, or any combination of these or other factors, are detrimental to the safety, health, morals or welfare of the community." The fifth standard concerns "a growing lack or total lack of proper utilization of areas caused by the condition of the title, diverse ownership of the real property therein or other conditions, resulting in a stagnant or not fully productive condition of land potentially useful and valuable." Finally, all areas designated in urban enterprise zones qualify.

The Act now creates an additional ground: An area can now qualify for redevelopment pursuant to subsection (h) if "the designation of the delineated area is consistent with smart growth planning principles adopted pursuant to law or regulation." This new ground could possibly form the basis for distinguishing several prior court decisions overturning redevelopment designations because none of the seven statutory criteria had been satisfied. For example, a trial court invalidated a designation that an area containing an apartment complex was in need of redevelopment, finding the municipality's claim that the complex was too dense and not designed in accordance with current standards inadequate. Spruce Manor Enterprises v. Borough of Bellmawr. In a second case, a court held that municipally owned property could not be designated as a redevelopment area for purposes of constructing a state-of-the-art ice skating facility. Since there was no proof that the property would not likely be developed by an infusion of private capital absent a redevelopment designation, the statutory criteria for redevelopment designation had not been satisfied, Winters v.Township of Voorhees. It is debatable whether these two redevelopment designations, even though they did not satisfy the prior statutory criteria, could be deemed consistent with smart growth planning principles.

Further, it is unclear what the phrase "consistent with smart growth planning principles adopted pursuant to law or regulation" means. Is mere consistency of the designation with the State Plan principles sufficient? A spokesperson at the Office of Smart Growth has informally stated that there may at some point be regulations implementing the new statute, but none are in the works. There was a suggestion that the section is inoperative until regulations are adopted. Whether a court would agree with this interpretation remains to be seen. The safest course for redevelopment advocates would be to develop a record in support of the redevelopment designation utilizing the old criteria, and to supplement it with "smart growth" arguments as well.

New Impediment to Redevelopment?

Although the Act could be a further boon to redevelopment efforts, there is one section of the Act that could stop or delay redevelopment efforts in some parts of the state. The Act provides that once the planning board and governing body designate an area as a redevelopment area, the municipality must forthwith transmit a copy of the resolution to the commissioner of the Department of Community Affairs. If the area in need of redevelopment is not situated in an area where development is to be encouraged pursuant to any state law or regulation, the redevelopment designation shall not take effect without review and approval by the commissioner. If the commissioner does not issue an approval or disapproval within 30 days, the designation shall be deemed to be approved. If the designation is of an area in which development or redevelopment is encouraged, then mere transmission of the notice to the commissioner is sufficient. There will be no state review.

Is commissioner inaction during the 30 day review period a binding determination that the redevelopment designation is not inconsistent with the State Plan? It is at least theoretically possible that an objector could seek to challenge a redevelopment plan outside a "smart growth" area, even though the commissioner did not disapprove it on grounds that it is contrary to the State Plan. It is also possible that an objector could attempt to appeal a decision by the commissioner approving a plan outside a smart growth area, or a failure to act within 30 days, to the Appellate Division.

There is no specific discussion of the procedure to be followed if the commissioner disapproves a redevelopment plan based upon the Act. Presumably, the only options available to the municipality or to the developer who sought to go forward with the redevelopment in this area would be informal negotiations with the commissioner or an appeal to the Appellate Division.

The Redevelopment Amendments and Low Income Housing

The Act also concerns Mount Laurel housing. The bill was amended to delete a requirement in the initial bill that an ordinance requiring a contribution for Mount Laurel purposes be consistent with the housing element and spending plan adopted by the municipality under the New Jersey Fair Housing Act. The Act instead provides that a municipality may make the receipt of a tax abatement in a redevelopment area conditional upon provision of a percentage of low and moderate income housing, or a contribution to an affordable housing trust fund. The statute specifies that the ordinance shall include a ceiling on the amount of contribution, a schedule of payment, and parameters governing the expenditure of these funds. It is not clear whether a municipality which has not received substantive certification can obtain such a payment. Council on Affordable Housing (COAH) regulations, with certain exceptions, prohibit use of development fees to municipalities that do not have substantive certification; the Act does not.

Alhough redevelopment is supposed to be a primary mechanism for achieving satisfaction of a municipal fair share, the maximum redevelopment fee for a residential development tax abatement project covered by the Act is $1,500. Under COAH regulations, the maximum fee ordinarily is 0.5% of the equalized assessed value, which means the fee for a $500,000 home would be $2,500. In short, the redeveloper with tax abatement pays less. Presumably, however, the Act does not impact a Supreme Court decision providing that developer's fees cannot be used on sites needed to satisfy a fair share obligation because of a vacant land shortage, where an inclusionary development is required.

Redevelopment, Contamination and Condemnation

Redevelopment frequently requires large scale condemnation of substandard properties, many of which may have environmental contamination. But if there is substantial remediation of contamination necessary, how does this affect the value of the condemnation award? This question was addressed in the Supreme Court decision of Housing Authority of City of New Brunswick v. Suydam Investors. A condemnation appraisal requires determination of the value of property when used for its highest and best use. Municipalities asserted that no true assessment of fair market value could take place without considering the contamination of the property and the reduction in value as a result of the contamination. The Supreme Court declared that condemnation appraisers must appraise the property as if the contamination had been remediated. The amount of that appraisal must be deposited into court. Nevertheless, the condemning agency can reserve the right to institute a separate action to recover remediation costs out of the proceeds of the condemnation. The trial court is given authority in Suydam to prevent the transfer of certain of the appraisal amount to the owner and order it to be retained in court, pending the resolution of the litigation over liability for the costs of remediation.

Tax Abatement Issues

The primary stimulus for the passage of the Act was a series of decisions in cases challenging tax abatements that have been granted. One of these cases, Town of Secaucus v. City of Jersey City, held that there had been a blatant attempt to circumvent the excess profit restrictions imposed upon a limited dividend developer who received tax abatement for his redevelopment project. It was asserted that cases such as these threatened to undermine a number of projects where tax abatements had been granted. The Act attempted to clarify how ceilings on income to limited dividend developers would be calculated. The details of those changes are beyond the scope of this article. The Act also limited the time for challenging a financial agreement or a tax exemption to 20 days from date of publication of the notice of the exemption, rather than 45 days. More astonishingly, the Act provided that the terms and conditions of any tax exemption previously approved was thereby ratified and validated. The Act was specifically amended to delete a provision which would have declined to "grandfather" abatements that were the subject of previously filed litigation. Thus, assuming the statute is constitutional, regardless of any abuses in a tax abatement or tax exemption agreement, such agreements appear to be retroactively immunized from legal challenge.

Conclusion

The new redevelopment amendments could either facilitate or further complicate redevelopment in a particular municipality. The possibility of litigation from objectors may be somewhat enhanced. Issues and problems concerning language in developer's agreements and relocation remain unaddressed. Hill Wallack will gladly answer legal questions and help navigate the course to redevelopment approvals and construction.

Kenneth E. Meiser, a Land Use Division partner, serves on the New Jersey Builders Association's Legal Action Committee and is a Member of the Board of Directors of the Land Use Section of the New Jersey State Bar Association. His practice is concentrated in the areas of land use applications and litigation.