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CITY OF JERSEY CITY v. PIERCE

June 8, 1987

City of Jersey City, et al., Plaintiffs
v.
Samuel R. Pierce, et al., Defendants



The opinion of the court was delivered by: LECHNER

 Lechner, District Judge.

 Pursuant to a program established by Congress, the Department of Housing and Urban Development ("HUD") provides federal grants to qualified urban areas so as to stimulate economic development activity in those areas. One of the conditions on the availability of these federal grants is that the development projects so funded not be used to facilitate a relocation of industrial or commercial plants or facilities from one urban area to the funded urban area. In January, 1985, HUD issued a "Statement of Policy" establishing certain presumptions with respect this "anti-pirating" condition on the availability of federal funds. Shortly thereafter, a number of New Jersey cities and urban areas filed this action challenging HUD's Statement of Policy.

 Judge Lacey denied plaintiffs' application for injunctive and declaratory relief in April, 1985. The Third Circuit affirmed that decision in February, 1986. Now before the Court are defendants' motion for dismissal of the action or summary judgment, and plaintiffs' motion for summary judgment. For the reasons set forth below, defendants' motion for summary judgment will be granted.

 Facts

 The plaintiffs in this action originally comprised twelve municipalities or political subdivisions of the State of New Jersey. All but two of the original plaintiffs, Jersey City and the Town of Kearny, have withdrawn from the action. The remaining plaintiffs are referred to herein, except as otherwise indicated, as Jersey City. The defendants in the action are Samuel R. Pierce, Secretary of HUD and HUD itself. Except as otherwise indicated, the defendants are referred to as HUD.

 In 1977, Congress amended the Housing and Community Development Act of 1974, 42 U.S.C.A. § 5301 et seq., to create an "urban development action grant" ("UDAG") program. The UDAG program authorizes the Secretary of HUD "to make urban development action grants to cities and urban counties which are experiencing severe economic distress to help stimulate economic development activity needed to aid in economic recovery." 42 U.S.C.A. § 5318(a). The UDAG program is designed to be available "to cities and urban counties which have, in the determination of the Secretary, demonstrated results in providing housing for low- and moderate-income persons and in providing equal opportunity in housing and employment for low- and moderate-income persons and members of minority groups." 42 U.S.C.A. § 5318(b)(1) (West Supp. 1987).

 Under the statute, the Secretary is empowered to establish criteria to use in determining which, among competing grant applicants, should be awarded UDAG funds. The Secretary has established such criteria, which are set forth in 24 C.F.R. § 570.452, et seq. Principal among these criteria is the degree of economic distress being experienced by an applicant city or urban county. The statute also imposes limitations on grants for projects which involve industrial relocations:

 
No assistance may be provided under this section for projects intended to facilitate the relocation of industrial or commercial plants or facilities from one area to another, unless the Secretary finds that the relocation does not significantly and adversely affect the unemployment or economic base of the area from which the industrial or commercial plant or facility is to be relocated.

 42 U.S.C.A. § 5318(h) (the "anti-pirating provision"). The terms of the anti-pirating provision, as well as its legislative history, make clear Congress was concerned that UDAG-inspired economic recovery in one area not occur at the expense of similarly distressed urban areas. See H.R. Rep. No. 95-236, 95th Cong., 1st Sess. 9, reprinted in 1977 U.S. Cong. Code & Admin. News 2884, 2892.

 Every UDAG application must contain a description of the applicant's proposed development projects, including a description of those businesses or entities that are expected to relocate to the project. 24 C.F.R. § 570.458. It appears that oftentimes, however, UDAG applicants submit applications for which not all of the proposed development space has an identified anticipated user. The parties refer to such uncommitted space as "speculative space." The problem which ultimately underlies this case is how the Secretary of HUD is to uphold his statutory mandate of not awarding UDAG funds to projects intended to facilitate relocation from other distressed areas, when some portion of a proposed UDAG project involves speculative space.

 HUD claims that in the UDAG funding rounds preceding and including the January, 1985 funding round, applicants submitted an increasing number of UDAG applications for development of projects containing speculative space. (Finkle Decl., 2/6/85, para. 8.) HUD further claims that in at least two recently proposed UDAG development projects containing speculative space, HUD discovered that the projects' developers had been marketing their projects' speculative spaces to potential relocatees from nearby distressed urban areas. (Id., paras. 11-14.) The particular problems facing HUD in such situations are explained by a HUD official:

 
Because UDAG applications are submitted by municipal jurisdictions, and not by developers, HUD is frequently unaware of the developer's marketing efforts, if at all, until after approval of the project. Further, because of the absence of identification of an intended occupant of the facility when completed, it is not self-evident when an application containing speculative space is considered for preliminary approval that the project is intended to facilitate a relocation.

 (Id., para. 14.)

 
Mobility is an important element of a dynamic economic system. The Department believes, however, [the anti-pirating provision] represents a strong Congressional sentiment that discretionary Federal grants should not be a decisive factor in the competition between geographic areas to relocate business investment from one area to another. Accordingly, the Department has concluded that it must formulate guidelines for its administration of the anti-pirating provisions in the ...

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