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Avalon Manor Improvement Association, Inc. v. Township of Middle

June 21, 2004


On appeal from the Superior Court of New Jersey, Law Division, Cape May County, L-594-01.

Before Judges King, Braithwaite and Lisa.

The opinion of the court was delivered by: Lisa, J.A.D.


Argued April 28, 2004

Plaintiffs, a property owner, a homeowners association and a committee of that association, from the Avalon Manor section of Middle Township, sought on behalf of the residents of their island community deannexation from Middle Township, and annexation to the Borough of Avalon (Avalon). They petitioned Middle Township for deannexation. The Middle Township Planning Board conducted hearings on the application and concluded deannexation would have various substantial detrimental impacts on the Township. The Township Committee then passed a resolution denying plaintiffs' petition.

Plaintiffs filed a complaint in lieu of prerogative writs challenging that determination. In a thorough and well-reasoned written opinion, Judge Perskie dismissed plaintiffs' complaint, finding the Township's denial was not arbitrary or unreasonable. Plaintiffs now appeal. They contend the judge erred in determining the Township acted reasonably and in refusing to limit the financial impact evidence to assessed values for the year immediately preceding the deannexation petition. We reject these contentions and affirm.


Middle Township (Township) in Cape May County is approximately seventy-two square miles large. In its northeast corner lies Avalon Manor (Manor) consisting of about 150 homes in a two-square-mile area, one of several hamlets or villages within the Township. Manor is a bay island, lying between the mainland and a barrier island on which Avalon is located. Manor has been a part of the Township since the Township's 1798 incorporation. It makes up about 2.7% of the Township. Manor has been the historical access point to Avalon from"the inland," but Avalon is also accessible from Stone Harbor and Sea Isle City.

On May 5, 2000, plaintiffs filed a petition with the Township seeking a resolution consenting to Manor's deannexation, and informing the governing body of plaintiffs' plans to seek annexation of Manor to Avalon. The land plaintiffs sought to be deannexed was made up primarily of residential lots and one marina, and the balance consisted mainly of coastal wetlands. Contiguous to the land sought to be deannexed was a NJDEP-approved dredge disposal site being used by Avalon.

The petition was authorized by the statutorily required sixty percent of Manor's legal voters. Among the reasons asserted for deannexation were that manor was"wholly isolated from any other portion of upland contained within the Township," and that Manor had a number of similar attributes to Avalon and significant concerns which Avalon shared but in which the remainder of the Township had no interest. And deannexation, according to the petition, would not result in any economic hardship to the Township. If successful in gaining the Township's consent to deannexation, plaintiffs would submit a second petition to Avalon for annexation. The Township Committee passed a resolution transferring the deannexation petition to the Planning Board (Board) to conduct hearings on the petition and make a recommendation. The Board held hearings between June 2000 and May 2001.

Ian Jerome, plaintiff's planner, described Manor as"isolated" and"low lying," being"entirely inundated periodically," and as experiencing"many of the environmental problems of flooding that is [sic] associated with the barrier, with the bay island communities." There were no municipal recreational facilities in Manor, and the only recreational facility of any kind was the county fishing pier. All of the"community facilities," were located outside Manor such as schools, the municipal building and a hospital. The geographic distance to these various facilities was one of the reasons"that Avalon Manor tends, physically and as a community, to associate itself along with Avalon than [sic] it does with the balance of Middle Township." According to Jerome,"the history of Avalon Manor has been right in and around the primary points of access and connection between the mainland and the Borough of Avalon," with the road bridge at 21st Street, connecting Avalon with the mainland, dating from 1914.

Jerome believed Manor was"a distinct, social community." Interaction was"primarily with Avalon, much more so than it is with Middle Township." According to a survey conducted by Jerome, with the exception of doctors and clinics, which showed a"50/50" split, Manor residents indicated"a much higher degree of interaction with Avalon than with Middle Township," in"a wide range of activities," including social and civic clubs, sports facilities, video stores, health clubs and the recycling center.

Manor residents had a much higher percentage (38%) of year round seniors (age sixty-five or older) than either the state or county averages, and roughly twice the percentage as the Township. Avalon's percentage of seniors, at twenty-nine percent, was much closer to Manor's. There were no Manor children in Township public schools. The two school-aged children who lived in Manor attended private schools.

According to Jerome,"seasonality factors" aligned Manor more closely with Avalon than the Township. In summer the Township's population went from about 14,771 to 55,100, but Avalon's population soared from 1,800 to 31,000 and approximately seventy percent of Manor's population was seasonal. Seventy-two percent of Manor properties had boat slips and direct access to the water, which Jerome saw as further indicating Manor had specific needs and concerns different from the Township.

Because of the proximity of Avalon's emergency services compared to those of the Township, Jerome felt that Manor would"be a safer community for its primarily elderly population if it was part of Avalon." Moreover, the Township had no flood plain management plan, while Avalon had one. The cable service the Township used to notify residents of an area emergency did not service Manor, whereas Manor and Avalon used the same cable service.

Avalon, unlike the Township, had an ongoing marina dredging program, and Jerome felt that Manor would benefit from such a program given"the deterioration in marina access to Avalon Manor properties due to siltation." Given the high number of Manor residents who had slips and the fact that a majority rated fishing and boating"as a very high priority," Jerome concluded that a dredging program was key to maintaining the value of those properties. Avalon, meanwhile, had both the required DEP and Army Corps of Engineers permits for its dredging program, and obtaining such permits was"difficult." Thus, even if the Township wanted to engage such a program it would be extremely expensive and time consuming and, given the logistics of the Township and other concerns, might not even be feasible. Other examples of municipal services which Avalon offered more frequently or to a greater degree than the Township included summer trash pickup, street sweeping and grass mowing.

Jerome also concluded deannexation would create no negative impact on the Township. The only physical Township"improvement" in Manor was the roadway itself, and there had been no recent municipal expenditures on that. According to the Township's master plan there was no future capital improvement planned for Manor. Moreover, if the Township made an effort to address the specific needs of Manor (such as flood mitigation issues, general concerns of an elderly population, and dredging programs), the cost would be substantial. Thus, if deannexation were permitted the Township would actually save money from not having to address those issues. Fire, police and rescue operations would also experience savings because the Township would"not have to extend its service area [to Manor]... and the distances involved." There would be no impact on water or sewer concerns, because Manor water was served by a separate water district, and the sewer was"a regional issue."

Jerome opined that annexation of Manor to Avalon would not remove from the Township"a significant portion of the developable lands" of the municipality. At any rate Manor was already almost fully developed, given the topography and features of lands making up most of the underdeveloped portions of Manor, a figure Jerome approximated at ten percent.

John Petersen was plaintiffs' expert in municipal finance and fiscal impact. He concluded that Manor did not represent a significant part of the Township's tax base, grounded in part on the facts that Manor"is pretty well built out" and could not be significantly more developed, and that the Township"itself is at a point where it appears that there's economic vitality and development that's occurring." If Manor were to be deannexed, it would have no impact on the Township's credit rating.

Petersen's analysis was based on information from both the 1999 and 2000 tax years. In terms of 1999 values, the portion of real estate represented by Manor's proposed deannexation amounted to $22.5 million in assessed values, or about 2.5% or 2.6% of the Township's"overall tax base." Petersen did not consider that to be significant given the"dynamic situation" of real estate values. Assessed values always changed over time, and"[i]n any given year there can be fluctuations," but a loss of about 2.5% would not cause the Township"financial turbulence" because it"is a pretty good size jurisdiction and a lot of things are happening.... I won't say it's a fly speck, but its not terribly material." In terms of the 2000-year assessed values, Petersen put the loss to the municipality at about 3.5 percent.

In Petersen's opinion when a municipality faced a loss in tax base of the extent contemplated here it would likely not raise taxes in response, but address the loss in some other, less drastic fashion. One option would be to"run down your fund balance and pray for rain." But the more likely scenario, especially inasmuch as the tax-base loss carried with it a certain amount of savings from the concomitant drop in needed services, was to cut expenditures. Another possibility was to begin getting tax money from particular properties currently exempt, and Jerome identified two such potential sites in the Township which were each assessed for about $1.6 million and were or would be up for sale.

Between 1996 and 1999 Township assessments increased each year (1996: $13.5 million; 1997: $12 million; 1998: $16 million; 1999: approximately $20 million). Petersen listed those types of increases as a means to offset any loss created by deannexation. Peterson identified properties upon which the Township could foreclose which were assessed at approximately $4.5 million. Foreclosure and resale of such properties would place them back in a tax-paying posture. And the Township could apply tougher enforcement tactics to enhance its tax collection rate.

Overall, Petersen acknowledged that deannexation could cause the Township to have to lay off some employees, but that other means were available to offset the loss in tax income, such as using people"on a part-time basis or maybe you don't fill a position" right away. Nevertheless, he did observe that the municipal school would likely suffer the largest budget impact though he did not foresee laying off teachers, and commented that school funding could be found from other sources. Concluding that"adjustments... will have to be made," he summed up his appraisal of the ongoing effect of deannexation:

Reduction in costs, some efficiencies will obviously help make up some of the loss. And, again, I can't look at a two percent, two and a half percent, three percent erosion in that particular tax base, on a historical basis, and say that that's traumatic. That's going to be replaced by growth elsewhere. It's not like the Township's tax base is shrinking. It's in the context of growth.

Joseph Ravitz, the municipal assessor, clarified that the assessments for the municipal properties that Petersen indicated were saleable were outdated. Ravitz said for the prior three years the property values in Manor had"been increasing in a very rapid manner." A typical 50-by-100-foot lot on Seabreeze Lane, for example, that sold for $125,000 in 1998 or 1999, sold for $215,000 in 2000. Among the reasons Ravitz cited for the increases were the paving of roads and installation of the sewer system.

Houses under construction in the neighborhood were listed for sale"for over $500,000." Many older homes were being"rehabed or rebuilt," thereby increasing in square footage. He thus disagreed with plaintiffs' contention that because there were few vacant lots left in Manor"the growth is... going to plateau or stop." He also cited the trend in similar communities where older, out-of-date houses were being torn down and replaced with newer, larger ones. He thus believed that the ratable base in Manor would"grow by millions of dollars... for the next five years." Total Manor taxables for 1999 were $24,569,200, and $32,029,700 for 2000.

Dr. Robert Elder, the Township school superintendent and a non-voting member of the School Board, confirmed that the Township did not"get a lot of students" from Manor. He understood that Manor's deannexation would result in a loss to the school district of approximately $459,000. Elder described the potential cuts in services to the school system if the district lost that amount of tax revenue on a continuing basis.

In order to raise that amount of money Elder would have to ask for a five-cent increase in the school tax, an"extraordinary happening, something that we wouldn't want to do very often."

James Alexis was the Township business administrator. According to him Manor received the same level of municipal services as all other areas in the municipality. In his experience the Township received no more complaints from Manor residents about Township services than it did from the other parts of the Township. From time to time the governing body actually met in the Avalon Manor Improvement Association building. In 1989, when the Legislature abolished all small sewer districts within municipalities, the Township reacted quickly to take over Manor's sewer system. He knew of no public safety issues in Manor that had gone unaddressed. The Township had full-time paid rescue services which served Manor as well as the rest of the municipality.

Alexis also expressed that the waterways and wetlands making up a portion of Manor were major assets promoting tourism to the area, as well as serving to enhance living in the Township generally. Avalon's utilizing the dredge soil site which was actually within the Township was in violation of the Township's own 1984 dredge soil ordinance. Since the hearings had begun in this matter, the Township was investigating and developing a municipal flood plan.

Glen Ortman, a CPA and RMA, performed an analysis of the financial consequences to the Township of deannexation. For 2000, the ratables loss would be $32,029,700 out of a total net valuation taxable of $901,835,239, or 3.56 percent. If deannexation occurred, he computed a 5.1-cent increase in the school tax for the 2000 year, or from $1,381 to $1,432, for example, on a $100,000-assessed property. County taxes would remain"about the same," but local municipal taxes would also rise, and Ortman put the amount at another two cents. Fire district taxes could also rise about half a cent, meaning the overall increase would be 7.5 cents. Ortman made clear ...

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