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Terrace v. New Jersey Housing and Mortgage Finance Agency

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 24, 2008

OVERLOOK TERRACE, HMFA #20, APPELLANT,
v.
NEW JERSEY HOUSING AND MORTGAGE FINANCE AGENCY, RESPONDENT.

On appeal from a Final Administrative Decision of the New Jersey Housing and Mortgage Finance Agency, Docket No. HFA 07710-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 7, 2008

Before Judges Graves, Sabatino and Alvarez.

This appeal involves the interpretation and application of a regulation of the New Jersey Housing and Mortgage Finance Agency ("HMFA" or "the agency"). The regulation in question, N.J.A.C. 5:80-9.13, governs a sponsor's optional conversion of certain privately-owned, HMFA-financed housing projects to mixed low-income and moderate-income projects. Such conversion enables a sponsor to take advantage of faster, streamlined procedures and less restrictive standards for implementing rent increases.

Pursuant to N.J.A.C. 5:80-9.13, appellant Overlook Terrace ("Overlook") sought to convert its HMFA-financed apartment buildings in West New York from a project designated as a moderate-income, market-rate facility to a mixed low-income and moderate-income facility. As it pursued that conversion, Overlook Terrace disagreed with the HMFA staff about the meaning and application of five discrete aspects of the regulation. The dispute was referred to an Administrative Law Judge ("ALJ") in the Office of Administrative Law ("OAL"), who presided over several days of trial.

In March 2006, before the OAL proceedings concluded, the HMFA amended N.J.A.C. 5:80-9.13, in a manner that buttressed the agency's position concerning the five issues contested in this case. Following the adoption of that revised regulation and the completion of the trial, the ALJ recommended that Overlook's position be rejected on all five issues. Thereafter, on September 21, 2006, the HMFA Board of Directors issued a final decision adopting the ALJ's determination.

Overlook now appeals the September 2006 final agency decision. Overlook argues that the HMFA's interpretation of N.J.A.C. 5:80-9.13, as it was worded in 2003 when Overlook submitted its conversion application to the agency, is incorrect, arbitrary and capricious. Overlook also contends that it would be manifestly unjust to apply the revised 2006 version of the regulation retroactively to its proposed conversion.

For the reasons explained herein, we affirm the HMFA's final decision, with one slight modification.

I.

As we previously noted in another recent appeal involving these same parties,*fn1 Overlook Terrace consists of two high-rise buildings in West New York constructed in the late 1960s. The buildings contain six hundred apartment units that are fully or substantially occupied. Their construction was financed with a fifty-year mortgage by the New Jersey Housing Finance Agency ("HFA"), the predecessor to the HMFA, through the issuance of tax-exempt bonds. See N.J.S.A. 55:14J-34(f) (repealed 1984); see also Overlook Terrace Mgmt. v. Rent Control Bd. of W. New York, 71 N.J. 451 (1976) (tracing the history of Overlook Terrace and the State agency's role in financing and overseeing the project). The HFA was created to support the development and rehabilitation of moderate-income housing in New Jersey through the use of below-market financing.

As the HFA's successor, the HMFA continues to hold a mortgage on Overlook Terrace. See N.J.S.A. 55:14K-2(e). As a condition for receiving its original below-market mortgage, Overlook must seek any proposed rent increases from the HMFA, on notice to the affected tenants. See N.J.A.C. 5:80-9.3 to -9.7. The agency retains control over the selection criteria for tenants, including family income limitations. See N.J.A.C. 5:80-8.1 to -8.5. The HFMA also reviews and passes upon the project's annual budget, including the funds set aside and spent for capital improvements. See N.J.A.C. 5:80-9.1, -9.4(a)(7). Because Overlook is a so-called "limited dividend" housing project, its owners can receive no more than an 8% annual return on their investment in the property, subject to certain exceptions. See N.J.A.C. 5:80-3.2 and -3.3.

Overlook is one of several market-rate HMFA projects that do not receive rent subsidies from a federal or state agency.

The rents received from tenants are the sponsors' sole sources of income for such projects. Because the annual process of obtaining approval for higher rents can be cumbersome, the HMFA decided in 1993 to propose an alternative, more expeditious procedure for increasing rents in these older projects that may need additional funds for repairs and capital improvements. See 26 N.J.R. 1188 (March 7, 1994) (rule proposal).

The proposed regulation, N.J.A.C. 5:80-9.13,*fn2 attempted to tie rent increases for such converted projects to income standards promulgated by the United States Department of Housing and Urban Development ("HUD"). See 26 N.J.R. 1188-90. Under the regulation, an eligible sponsor that chose to convert its housing project to a mix of at least 10% low-income tenants and a remainder of moderate-income tenants, could take advantage of the streamlined procedures. Id. at 1188. The provisions allow rent increases capped at 10% annually for the low-income units and 20% annually for moderate-income units. N.J.A.C. 5:80-9.13(a)(1). The HMFA anticipated that this new option would "help address the shortage of low-income units needed in the State," while, at the same time, produce an overall increase in revenues for such projects, many of which were "at or approaching [twenty] years old and will be in need of funds for capital improvements and repairs." 26 N.J.R. 1189.

At the time N.J.A.C. 5:80-9.13 was first was proposed in 1994, fourteen HMFA-financed projects, including Overlook, did not receive any governmental rental subsidies and thus would have been covered by the new regulation. 26 N.J.R. 1188. The proposal generated public comments and questions from nine persons, six of whom did not live in projects that would have been affected by the new rule. See 26 N.J.R. 2570 (June 20, 1994) (rule adoption). It does not appear from the New Jersey Register that Overlook's owners submitted any public comment on the proposed rule, although an attorney representing an unidentified project raised several questions about the proposal in his written submission. Id. at 2570-71.

The HMFA adopted the new conversion rule on May 20, 1994,*fn3 with an effective date of June 20, 1994. Id. at 2570. The regulation, which was entitled, "Rent increases for low and/or moderate income projects without Federal project-based rent subsidies," began as follows:

(a) Sponsors of housing projects without project-based Federal rent subsidies may elect to implement rent increases in accordance with rules in this section rather than those in N.J.A.C. 5:80-9.1 through 9.12. The rules within this section may be used only after the owner demonstrates that at least 10 percent of the units are rented to low[-]income families and the balance rented to moderate[-]income families. [N.J.A.C. 5:80-9.13(a) (amended 2006).]

Subsection (a) went on to cross-reference HUD's income standards:

HUD's definition of low[-] and moderate[-] income families shall be used for the purposes of the following:

1. Sponsors shall submit a written request to the [a]gency, accompanied by the most recent HUD median[-]income figures and the maximum rents corresponding to the median[-]income figures. The agency will review and verify the information contained therein and, if accurate, approve the rent increase, up to a maximum of 10 percent for low[-]income units and 20 percent for moderate[-]income units. The [a]gency will provide written notice of the approval to the Sponsor.

2. Upon approval from the [a]gency, the Sponsor shall notify tenants in writing. Notice shall be by mail or hand delivery to each tenant's unit or by personal service. The notice shall include the calculation of how the increase was determined pursuant to HUD's increase in median income.

3. The new rents shall be effective on the first day of the month following one calendar month's written notice to the tenants. [Ibid.]

The next portion of the regulation, subsection (b), addressed projects that do not currently meet the low-income and moderate-income tenant distributions required in subsection (a), but whose sponsors wish to convert to such a tenant mix:

(b) Sponsors of projects without project-based Federal rent subsidies, which do not meet the low[-] and moderate[-]income unit distribution set forth in (a) above, may elect to convert their project to that unit distribution and thereby be subject to (a)1 through 3 above.

1. Sponsors who elect to convert shall get credit toward the 10 percent low[-] income, 90 percent moderate[-]income unit distribution for any existing tenants meeting such standard. As vacancies occur, the units shall first be rented to fulfill the 10 percent low[-]income requirement and then 90 percent to moderate[-]income families.

2. In the event that any of the 90 percent moderate[-]income units have current rents at less than the maximum moderate[-] income rent, rent increases for the first five years following conversion shall be permitted up to 20 percent per year (without regard to HUD increases in median income) until HUD's maximum moderate[-]income rent is reached. Thereafter, rents shall be implemented pursuant to (a)1 through 3 above. [N.J.A.C. 5:80-9.13(b) (amended 2006).]

The regulation envisioned that low-income units in such converted projects would revert to moderate-income status within fifteen years:

(c) Low[-]income units shall revert to moderate[-]income units 15 years after the conversion. At such time, rent increases for the next five years shall be permitted up to 10 percent per year (without regard to HUD increases in median income) until HUD's maximum moderate[-]income rent is reached. Thereafter, rents shall be implemented pursuant to (a)1 through 3 above. [N.J.A.C. 5:80-9.13(c) (amended 2006).]

In subsection (d), the regulation prescribed a formula specifying the applicable family size to be used in determining maximum rents, depending upon whether the rented unit is an efficiency or a larger apartment. N.J.A.C. 5:80-9.13(d). The regulation also established a procedure for a sponsor of converted units to seek rent increases from the HMFA above the authorized levels. N.J.A.C. 5:50-9.13(e).

Almost a decade after N.J.A.C. 5:80-9.13 was enacted, Overlook submitted a request to the HMFA in May 2003 to convert its project from a moderate-income, market-rate facility to a mixed low-income and moderate-income housing project, and to obtain associated rent increases. After that request was filed, the agency and Overlook exchanged a series of communications, with differing interpretations of N.J.A.C. 5:80-9.13. In light of those persisting disagreements, the agency formally denied Overlook's conversion application in April 2004. At Overlook's request, the agency referred the matter to the OAL in May 2004, for a hearing as a contested case.

The principal item of disagreement between the parties centered upon the meaning of the regulation's reference to "HUD's definition of low[-] and moderate[-]income families," which the regulation uses as the polestar for determining the mix of "low-income" and "moderate-income" units in a project seeking conversion. See N.J.A.C. 5:80-9.13(a). The HMFA took the position that the HUD standards treat "low income" as 50% of an area's median income, and "moderate income" as 80% of median income. Overlook, conversely, asserted that the HUD standards treat "low income" as 80% of median income, and "moderate income" as 95% of that figure. According to Overlook, the parties' impasse on this key issue vastly affected the economics of a possible conversion.

The four other interpretative issues litigated by the parties in the OAL were (1) whether rent increases to attain the HUD levels must be phased in over a five-year period, or whether Overlook was entitled to increase rents immediately by up to 20% annually; (2) the timing of allowable rent increases to low-income tenants; (3) the status of low-income units in excess of the 10% percent threshold; and (4) whether the sponsor had to re-certify the income of all tenants annually.

The OAL heard this matter on intermittent days in September 2005, November 2005, and January 2006. As its pivotal witness, Overlook called Anthony W. Tozzi, a former regulatory officer employed by the HMFA from the late 1970s to 2003. Tozzi, a member of the New Jersey bar, drafted the text of N.J.A.C. 5:80-9.13 in 1994, as well as the related social impact and economic statements, the regulatory flexibility analysis, the agency's responses to public comments, and other documents published in the New Jersey Register concerning the regulation.*fn4

In his testimony, Tozzi admitted that he had made a mistake in drafting the regulation in 1994 when cross-referencing HUD's income guidelines. The HUD guidelines, in actuality, refer to "low income" as 80% of median area income, and "very low income" as 50% of median area income, but contain no definition of "moderate income."*fn5 See Rental Help-Hud's Public Housing Program, www.hud.gov/renting/phprog.cfm (last visited April 16, 2008) ("Rental Help"); see also 24 C.F.R. § 5.603 (definitions pertaining to federal regulations or public housing). Nonetheless, the social impact statement that Tozzi drafted in 1994 for proposed N.J.A.C. 5:80-9.13 stated, to the contrary:

HUD's definition of [a] moderate[-]income family is one which earns no more than 80 percent of the median [area] income. HUD's definition of a low[-]income family is one which earns no more than 50 percent of the median [area] income. In both cases, HUD sets the median income on a county-by-county basis.

[26 N.J.R. 1189.]

According to Tozzi, this discrepancy occurred because he had misread a HUD chart identifying and classifying median income percentages. Tozzi acknowledged that he discovered his mistake at some point before he left the agency in 2003, and informed his superiors of the mistake. Tozzi also addressed the four other points in dispute, offering his own views about the intended meaning of N.J.A.C. 5:80-9.13 concerning those issues.

The HMFA's sole witness at the OAL trial was Anthony Cupano, the agency's director of property management. Cupano, who has worked for the HMFA for about thirty years, explained the agency's process in reviewing Overlook's application. As a general observation, Cupano stressed that a project sponsor seeking conversion and corresponding rent increases must bear in mind the hardship that such higher rents may impose upon tenants. Cupano also noted the agency's concern about the "serious" financial consequences that may result if such higher rents prove to be uncollectible from tenants who are in the designated income ranges.

With respect to the central issue of the low-income and moderate-income criteria, Cupano testified that he was unaware, until Tozzi's testimony in this case, of any disparity between N.J.A.C. 5:80-9.13 and the actual definitions used in the HUD guidelines. Illustratively, in the only project to be converted under N.J.A.C. 5:80-9.13, Edgewater East and West ("Edgewater"), the HMFA applied the respective 50%/80% median income benchmarks reflected in the regulation's 1994 social impact statement, and not the 80%/95% income benchmarks advocated here by Overlook. This interpretation of the HUD guidelines was reflected in a September 1999 letter that Cupano wrote to one of Edgewater's principals, allegedly after consulting with Tozzi.*fn6 Cupano also authenticated a letter that the HMFA's executive director had sent to United States Senator Bill Bradley in December 1994, stating that the agency would be applying the 50%/80% income benchmarks to conversion applications.

Before the OAL trial concluded, the HMFA proposed several amendments to N.J.A.C. 5:80-9.13. These amendments addressed all five of the issues in dispute in this case, as well as some other incidental subjects. The amendments, which were characterized by the agency as "curative" and "clarify[ing]" in nature, were published for comment in the New Jersey Register on November 21, 2005. See 37 N.J.R. 4363-65 (rule proposal).

The amended regulations provide, in pertinent part, as follows:*fn7

(a) Sponsors of housing projects without project-based Federal rent subsidies may elect to implement rent increases in accordance with the rules in this section rather than those in N.J.A.C. 5:80-9.1 through 9.12. The rules within this section may be used only after the owner demonstrates through an [a]gency approved annual tenant income certification process that at least 10 percent of the units are rented to low[-]income families and the balance rented to moderate[-]income families. For the purposes of this section, a low[-]income family is a family that earns 50 percent or less of the HUD area median income and a moderate[-]income family is one that earns greater than 50 percent but no more than 80 percent of the HUD area median income. The foregoing provision defining a low[-]income family and a moderate[-]income family in effect as of (effective date of amendment) shall be retroactive and considered effective as of June 20, 1994.

1. Sponsors shall submit a written request to the [a]gency, accompanied by the current tenant income certifications, the most recent HUD median income figures and the maximum rents corresponding to the median income figures. The [a]gency will review and verify the information contained therein and, if accurate, approve the rent increase, up to a maximum of 10 percent for low[-]income units and 20 percent for moderate[-]income units, not to exceed the maximum rents corresponding to the median income figures. The [a]gency will provide written notice of the approval to the Sponsor.

(b) Sponsors of projects without project-based Federal rent subsidies, which do not meet the low[-] and moderate[-]income unit distribution set forth in (a) above, may elect to convert their project to that unit distribution. Following a successful conversion to a project with at least 10 percent of the units reserved for or rented by low[-]income families and the remainder reserved for or rented by moderate[-]income families, rent increases may be implemented via (a)1 through 3 above.

1. Sponsors who elect to convert shall get credit toward the 10 percent or greater low[-]income and 90 percent or less moderate[-]income family unit distribution for any existing tenants meeting such standard following an [a]gency approved tenant income certification process. As vacancies occur, the units shall first be rented to low[-]income families to fulfill the 10 percent or greater low[-]income requirement and then the remainder to moderate[-]income families to fulfill the moderate[-]income requirement.

2. In the event that any of the moderate[-]income units have current rents at less than the maximum moderate[-]income rent provided under (a)1 above, rent increases shall be phased in over the first five years following election to convert until the maximum rent is reached for a moderate[-]income family. The maximum allowable annual rent increase is determined by taking the dollar difference between the current rent of a unit and the maximum moderate[-]income rent provided herein at the time of election to convert, and dividing the difference by five. The resulting number will be the maximum allowable annual increase for moderate[-] income units under this section. However, in no event may the rent increase in a given year be greater than 20 percent of the then current rent for a unit. Thereafter, rents for moderate[-]income units shall be implemented pursuant to (a)1 through 3 above.

(c) Low[-]income units may revert to moderate[-]income units 15 years after the conversion. At such time, rent increases shall be phased in over the next five years until the maximum rent is reached for a moderate[-]income family. The maximum allowable annual rent increase is determined by taking the dollar difference between the current rent of a unit and the maximum moderate[-]income rent provided herein at the time of the reversion of the low[-] income units, and dividing the difference by five. The resulting number will be the maximum allowable annual increase for moderate[-]income units under this section. However, in no event may the rent increase in a given year be greater than 10 percent of the then current rent for a unit. Thereafter, rents shall be implemented pursuant to (a)1 through (3) above.

(d) If a project currently has more than 10 percent low[-]income residents, such units must be maintained as low[-]income units until vacancies occur. [N.J.A.C. 5:80-9.13 (emphasis added).]

The only person who filed comments with the HMFA concerning the proposed 2006 amendments was Tozzi. He asserted that the 50%/80% income benchmarks relating to the HUD income guidelines should not be applied retroactively. See 37 N.J.R. 1430 (March 20, 2006). Tozzi criticized three other portions of the amendments, arguing that they were practically burdensome, irrational in certain respects, and lacking in adequate objective standards. Id. at 1430-31. The agency rejected each of Tozzi's filed objections, and adopted the rule amendments on February 22, 2006.*fn8 Id. at 1430.

In responding to Tozzi's comments in the New Jersey Register, the HMFA noted that it had already applied the 50%/80% HUD benchmarks to the Edgewater project. Ibid. Consequently, it declared that the rule amendment, which simply expresses the agency's asserted pre-existing approach to those benchmarks, should be retroactive:

The [a]gency is on record in the New Jersey Register with its interpretations of the definitions of low-income family and moderate-income family at the time the [1994] regulation was promulgated. The retroactive amendments merely clarify the language and intentions of the [a]gency in regards to the regulation. Therefore, the [a]gency considers the amendment curative and retroactively applicable. [Ibid.]

The parties filed additional submissions with the ALJ contesting the significance of the amended regulation for Overlook's case. Subsequently, on July 21, 2006, ALJ Jesse Strauss issued a comprehensive twenty-five page decision, upholding the HMFA's denial of Overlook's conversion application.

The ALJ generally rejected Overlook's substantive interpretations of the original version of N.J.A.C. 5:80-9.13. The judge only reached the legal issue of retroactivity with regard to the low-income and moderate-income benchmarks. As to those benchmarks, the ALJ agreed with the HMFA that the retroactive application of the curative amendment posed no manifest injustice to Overlook. The ALJ found that "[s]ince the original proposal date of the regulation in 1993, the [a]gency has consistently explained to the public its position that it applies a 50 percent and [an] 80 percent standard." The ALJ specifically alluded, in that regard, to the agency's pre-2006 correspondence with several outside parties confirming the 50%/80% benchmarks, as well as the agency's earlier application of those benchmarks to the Edgewater conversion.

The ALJ found that Overlook had made "no showing that it relied to its detriment on the actual HUD definitions as opposed to the ones implemented by the [a]gency." He noted that "Overlook has received rent increases for many years under the other [non-conversion] rent increase methodology," and "has not been compelled to change its methodology." The ALJ found Tozzi's trial testimony "of little value," deeming it a mere "post[-]enactment statement[] on [the regulation's] legislative intent" that did not dispose of the contested interpretative issues.

On September 21, 2006, the HMFA Board adopted the ALJ's findings. Overlook now appeals that final decision, essentially arguing the same points it had asserted before the agency and the ALJ.

II.

There is no dispute that if the amended version of N.J.A.C. 5:80-9.13 enacted in 2006 applies to Overlook's conversion, the agency's position on all five contested issues is correct, and this appeal should be dismissed. The question thus becomes whether the amended regulation should apply retroactively to Overlook.

The agency argues that the 2006 amendments should apply here under the so-called "time-of-decision" principle. Under that principle, a court applies the law that is in effect at the time of its decision. See Pizzo Mantin Group v. Twp. of Randolph, 137 N.J. 216, 235 (1994). Overlook, on the other hand, contends that it would be manifestly unjust to apply the new amendments to it retroactively. See State Troopers Fraternal Ass'n of N.J., Inc. v. State, 149 N.J. 38, 54 (1997).

The purpose of the time-of-decision principle "is to effectuate the current policy declared by the legislative body[,] a policy which presumably is in the public interest." Kruvant v. Mayor of Cedar Grove, 82 N.J. 435, 440 (1980). See also Riggs v. Twp. of Long Beach, 101 N.J. 515, 520-21 (1986). The principle applies, for example, where a codified provision is revised "in order to perfect a legislative policy decision therein expressed by it but imperfectly so." Urban Farms, Inc. v. Borough of Franklin Lakes, 179 N.J. Super. 203, 220 (App. Div.), certif. denied, 87 N.J. 428 (1981). The principle also is germane where a law is amended "merely to carry out or explain" its original intent. Kendall v. Snedeker, 219 N.J. Super. 283, 287 (App. Div. 1987).

The time-of-decision principle applies not only to statutes passed by the Legislature, but also to regulations enacted by administrative agencies. In such administrative law contexts, a court will routinely apply a government agency's rules and regulations as they exist at the time that the case or appeal is decided. See, e.g., In re Protest of Coastal Permit Program Rules, 354 N.J. Super. 293, 333 (App. Div. 2002); Walker v. N.J. Dep't of Insts. & Agencies, 147 N.J. Super. 485, 489 (App. Div. 1977). That is particularly true where there is an "'unequivocal expression'" of intent by the promulgating authority to apply a new rule retroactively. Dewey v. R.J. Reynolds Tobacco Co., 121 N.J. 69, 95 (1990) (quoting Penn. Greyhound Lines, Inc. v. Rosenthal, 14 N.J. 372, 381 (1954)).

We recognize, however, that the application of the time-of-decision principle is not automatic. A court must take into account fairness considerations, balancing the equities between a regulated party, on the one hand, and the public interest on the other. See Eastampton Ctr., LLC v. Planning Bd. of Eastampton, 354 N.J. Super. 171, 197 (App. Div. 2002).

In that same vein, a new law or regulation should not be applied retroactively where doing so would cause a manifest injustice. State Troopers, supra, 149 N.J. at 54. As our Supreme Court stated in Gibbons v. Gibbons, 86 N.J. 515, 523-24 (1981):

The essence of this inquiry is whether the affected party relied, to his or her prejudice, on the law that is now to be changed as a result of the retroactive application of the [law], and whether the consequences of this reliance are so deleterious and irrevocable that it would be unfair to apply [it] retroactively.

This requires a weighing of the public interest in the retroactive application of the law against the affected party's reliance on previous law, and the consequences of that reliance. Nelson v. Bd. of Educ. of Old Bridge, 148 N.J. 358, 372 (1997).

The text of the 2006 amendments to N.J.A.C. 5:80-9.13, and the agency's contemporaneous statements published in the New Jersey Register, make it pellucidly clear that the HMFA intended the amendments to apply retroactively. To determine if that retroactive application is manifestly unjust in this case, we must assess whether Overlook could have reasonably and justifiably relied on any contrary guidance contained in or suggested by the original regulations adopted in 1994.

This assessment, in turn, requires us to consider the meaning of the 1994 regulations. In doing so, we accord substantial deference to the HMFA's interpretation of its own rules, which were enacted under the powers delegated to the agency by the Legislature. See In re Adopted Amendments to N.J.A.C. 7:7A-2.4, 365 N.J. Super. 255, 264 (App. Div. 2003); Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J. Super. 52, 56 (App. Div. 2001). "Absent arbitrary, unreasonable or capricious action, the agency's determination must be affirmed." Wnuck, supra, 337 N.J. Super. at 56 (citing R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 175 (1999)). Even so, we are not, of course, bound by the agency's opinions on matters of regulatory law. Levine v. State, Dep't of Transp., 338 N.J. Super. 28, 32 (App. Div. 2001) (citing G.S. v. Dep't of Human Servs., 157 N.J. 161, 170 (1999)). Nor are we necessarily required to accept the agency's labeling of the 2006 amendments as "curative" or "clarify[ing]." 38 N.J.R. 1430 (March 20, 2006).

With these concepts in mind, we turn to the five discrete issues raised on appeal.

A.

As we have noted, the most important dispute in this case concerns what is meant by the terms "low income" and "moderate income" in N.J.A.C. 5:80-9.13. The 2006 amendments to the regulation unambiguously define a low-income family as "a family that earns 50 percent or less of the HUD area median income," and a moderate-income family as "one that earns greater than 50 percent but no more than 80 percent of the HUD area median income." N.J.A.C. 5:80-9.13(a). Lest there be any doubt about that, the regulation goes on to proclaim that "[t]he foregoing provision defining a low[-]income family and a moderate[-]income family . . . shall be retroactive and considered effective as of June 20, 1994." Ibid.

Overlook argues that it relied on a contrary understanding of the pertinent income levels. Specifically, it contends that "low income" refers to 80% of the HUD median area income, and that "moderate income" refers to 95% of that median figure. In this regard, it points to the HUD guidelines that treat "low income" as 80%, not 50% of median income. Overlook also emphasizes Tozzi's mistake in reading the HUD chart in 1994, essentially arguing that it was too late for the agency to correct his mistake in 2006 to Overlook's disadvantage.

We concur with the ALJ and the agency that Overlook's claims of reliance and manifest injustice concerning the HUD income levels are unwarranted. The HUD guidelines do not define a "moderate-income" family. Consequently, Overlook could not have reasonably relied upon a HUD definition that did not exist. See Rental Help, supra; see also 24 C.F.R. § 5.603. We acknowledge that HUD's definition of a "low-income" family does comport with Overlook's position, but that is, at best, only half of the pertinent income test.

There are abundant other reasons for rejecting Overlook's interpretation of the 1994 version the rule and its claim of reliance. First, as we have already shown, the social impact statement that accompanied the regulation in 1994 clearly announced that the HMFA considered HUD's definition of a moderate-income family to be "one that earns no more than 80 percent or the median income" and a low-income family as "one that earns no more than 50 percent of the median income." 26 N.J.R. 1189. This extrinsic aid sheds light on the intended meaning of the HMFA rule, regardless of whether Tozzi personally made a mistake in reading the HUD guidelines when he prepared the regulation.

Second, as reflected by the correspondence and other pre-2006 documents presented by the agency at trial, the HMFA has consistently interpreted the low-income and moderate-income criteria in accordance with the 1994 social impact statement. Third, the agency has applied its interpretation of those terms to the only project that converted pursuant to N.J.A.C. 5:80-9.13, the Edgewater project.

We also note that the agency's application of the 50%/80% income benchmarks to N.J.A.C. 5:80-9.13 conversions is consistent with the definitions of "low-income and "moderate-income" housing adopted by the Legislature in the Fair Housing Act. See N.J.S.A. 52:27D-304(c) and (d). Other statutes employ cognate income levels. See, e.g., N.J.S.A. 55:14K-74 (senior and disabled cooperative housing); N.J.S.A. 55:14K-56 (affordable home ownership opportunities). The HMFA's approach here also is consistent with the income definitions contained in its affirmative fair housing marketing guidelines. See N.J.A.C. 5:80-22.1. These numerous parallels are significant, because when laws relate to the same or similar subject matter, "'[courts] make every effort to . . . attempt to interpret them harmoniously.'" In re Failure by the Dep't of Banking & Ins. to Transmit a Proposed Dental Fee Schedule to OAL, 336 N.J. Super. 253, 266 (App. Div.) (second alteration in original) (quoting Oches v. Twp. of Middleton Police Dep't, 155 N.J. 1, 5 (1998)), certif. denied, 168 N.J. 292 (2001).

Based upon these numerous factors, we accept the agency's characterization of the 2006 amendment to N.J.A.C. 5:80-9.13's income benchmarks as being curative in nature. The amendment remedies an imperfection in the expression of the original regulation, and does not alter the manifest scope or purposes of that rule. Kendall, supra, 219 N.J. Super. at 288.

We also agree with the ALJ's finding that Tozzi's testimony, describing the evolution of his personal understandings of the HMFA's regulation and of the HUD guidelines, are of negligible value to the legal analysis. As the ALJ correctly recognized, post-enactment statements by persons who had been involved in the legislative process about the supposed intent of a codified provision are "of limited legal value" in construing such a provision. N.J. Coal. of Health Care Prof'ls v. N.J. Dep't of Banking & Ins., 323 N.J. Super. 207, 255 (App. Div.), certif. denied, 162 N.J. 485 (1999); see also Dumont Lowden, Inc. v. Hansen, 38 N.J. 49, 56 (1962). Although we appreciate Tozzi's candor in confessing that he made a scrivener's error when he worked for the government, we discern no reason to reward his current private client for that error.

In sum, we are persuaded that the ALJ and the agency correctly rejected Overlook's arguments on this pivotal issue. We affirm their determinations that the 50% and 80% HUD median income levels, respectively, apply to the low-income and moderate-income tenant distributions in the conversion process under N.J.A.C. 5:80-9.13.

B.

We next consider whether, during the process of conversion, low-income units in the project exceeding the 10% required distributional threshold in N.J.A.C. 5:80-9.13 must remain at low-income rent levels until vacancies in those units occur. The HMFA takes the position that the rents in all low-income units, even those beyond the 10% minimum, must remain at the lower-income levels until those units are vacated. Overlook argues that the agency's position is unreasonable, alleging that the 1994 version of the regulation did not obligate sponsors to keep the rents low for those low-income units that exceeded the 10% threshold.

As adopted in 1994, N.J.A.C. 5:80-9.13(a) provided that rent increases could be implemented "only after the owner demonstrates that at least 10 percent of the units are rented to low[-]income families and the balance rented to moderate[-]income families." (Emphasis added.) In 2006, the regulation was amended to insert the following language: "[i]f a project currently has more than 10 percent low[-]income residents, such units must be maintained as low[-]income units until vacancies occur." N.J.A.C. 5:80-9.13(d) (emphasis added). Hence, it is clear that, if the 2006 version of the regulation applies, Overlook is bound to keep all of its "excess" low-income units in that lower rent range until those units are vacated.

Although the 1994 regulation was not explicit about the rents that may be charged for low-income units exceeding the 10% threshold in a converted project, it did not state that the distribution of low-income units must be set at a maximum of 10%. Contrary to Overlook's argument, the use of the phrase "at least"--immediately preceding the term "10 percent of the units"--in the 1994 version of subsection (a) suggests that a converted project could continue to rent more than 10% of its units out as low-income dwellings. Had the agency intended the distribution of low-income units to be capped at 10%, it could have so stated. See O'Connell v. State, 171 N.J. 484, 488 (2002).

Furthermore, we do not read the 1994 regulation as granting sponsors of converted projects the right to adjust rents in a manner that ignores an individual tenant's low-income status. If, as Overlook argues, the regulation intended to allow sponsors to charge moderate-income rents to all low-income units that exceeded the 10% distributional threshold, it could have specifically authorized them to do so. The regulation's silence on this issue suggests that such an interpretation was not intended. Ibid.

Moreover, the agency has long interpreted the 1994 regulation on this issue in accordance with its position in the present case. Specifically, during the comment period preceding the adoption of the 1994 regulation, a lawyer inquired as to what would happen if more than 10 percent of a converted project's units were occupied by low-income tenants. The HMFA responded in the New Jersey Register that "[t]he [a]gency does not intend to displace any existing tenants. Accordingly, if a project currently has more than 10 percent low[-]income residents, such units must be maintained as low income until vacancies occur." 26 N.J.R. 2571. The agency's unambiguous published response on this inquiry severely undermines Overlook's claim of reasonable reliance on a contrary interpretation. The agency's long-standing interpretation is also consistent with one of the key aims of N.J.A.C. 5:80-9.13 and the HMFA's enabling statute, specifically, to increase the amount of low-income housing available in New Jersey. There is no manifest injustice in applying the clarified version of N.J.A.C. 5:80-9.13(d) on this issue.*fn9

We thus affirm the ALJ and the agency in rejecting Overlook's contentions. After conversion, the rents in any so- called "excess" low-income units must be kept at those lower rent levels until vacancies occur.

C.

We next address two related issues in dispute regarding tenant income certifications and re-certifications. In its final decision, the HMFA interpreted the 1994 version of N.J.A.C. 5:80-9.13 to prohibit housing sponsors from immediately implementing a 10% rent increase on low-income units unilaterally. The HMFA construed the 1994 regulation to authorize it to require sponsors to first demonstrate, through tenant income certifications, that at least 10% of the units were being rented to low-income families, and the remaining units were being rented to moderate-income families, before such rent increases could be implemented.

In a related vein, the agency also interpreted the 1994 version of N.J.A.C. 5:80-9.13(a) to require sponsors applying for conversion to provide income certifications of all of its tenants on an annual basis. The agency wants such annual re-certifications in order to be assured that a converted project meets, and continues to meet, the necessary mix of low-income and moderate-income families. The agency regards these certifications as a reasonable means to verify that the regulation's overall substantive requirements are being met.

Overlook argues that these certification requirements are arbitrary, capricious, and overly burdensome. It contends that they are not consonant with the terms of the original version of the regulation and, moreover, undercut the efficiencies desired when the conversion option was created in 1994.

Here again, the present version of the regulation, as adopted in 2006, clearly delineates the sponsor's obligations. The income certifications and re-certifications are a predicate to a sponsor raising rents and deriving the benefits of the conversion scheme. N.J.A.C. 5:80-9.13(a) now specifies, in pertinent part, that a project can take advantage of conversion "only after the owner demonstrates through an [a]gency[-]approved annual tenant income certification process that at least 10 percent of the units are rented to low[-]income families and the balance rented to moderate[-]income families." Ibid. (Emphasis added.) Likewise, subsection (b) prescribes that sponsors who do not presently have the required mix of tenants may receive credit for any existing tenants meeting the income standards "following an [a]gency[-]approved tenant income certification process." N.J.A.C. 5:80-9.13(b)1 (emphasis added).

We do not perceive the agency's requirements for ongoing tenant income documentation to be arbitrary or capricious. To the contrary, they are a reasonable method to assure that the project is and remains eligible for the benefits of the program. Although we acknowledge that tenant certifications were not specifically mentioned in the 1994 regulation, the former version did require the owner to "demonstrate" that the project met the required tenant income levels, see N.J.A.C. 5:80-9.13(a) (as enacted in 1994), and that the sponsor's written conversion request was to be "accompanied by the most recent HUD median income figures." N.J.A.C. 5:80-9.13(a)1. Sponsors were also specifically on notice that the agency would "review and verify the information contained therein" before approving a project for conversion. Ibid.

We recognize that, for HMFA-financed projects not seeking the benefits of conversion, the family incomes of tenants only have to be re-certified every three years. See N.J.A.C. 5:80-20.5. Nevertheless, the agency's demand for more frequent and comprehensive documentation from a sponsor choosing the conversion option is not unreasonable. Indeed, it is a fair quid pro quo for the special benefits of the program. We perceive no manifest injustice in enforcing the present terms of the regulation to Overlook, should it choose to pursue conversion after this appeal is concluded.

Although we appreciate Overlook's complaint that obtaining annual income certifications from each of the 600 tenant families residing in the project could be onerous, we trust that the agency, in its fair administration of the program, will be sensitive to the practical obstacles that Overlook, or other sponsors, may encounter. Nothing in this opinion precludes the agency from granting modest waivers to deal with missing certifications in instances of reasonable diligence. The agency may also consider amending the regulation at a future time if the certification requirements lead to widespread operational difficulties. We leave such considerations to the agency's dayto-day administration of the program.

We thus affirm the ALJ and the agency in applying the tenant income certification and re-certification requirements to Overlook.

D.

As a final issue, we consider Overlook's argument that it should be permitted, under its interpretation of the terms of the former 1994 regulation, to raise rents in moderate-income units as much as 20% per year, until those rents attain the maximum rent levels allowable for such units. In this regard, Overlook cites the following portion of the 1994 version of subsection (b)2 of N.J.A.C. 5:80-9.13:

In the event that any of the 90 percent moderate[-]income units have current rents at less than the maximum moderate rent, rent increases for the first five years following conversion shall be permitted up to 20 percent per year (without regard to HUD increases in median income) until HUD's maximum moderate income is reached. Thereafter, rents shall be implemented pursuant to [N.J.A.C. 5:80-9.13](a)1 through 3 above. [N.J.A.C. 5:80-9.13(b)2 (amended 2006) (emphasis added).]

The agency has rejected Overlook's position, instead requiring that any rent increases needed to attain the maximum allowable levels must be phased in over five full years. This five-year phase-in period was specifically inserted in the 2006 amended version of the regulation, which now states that "[i]n the event that any of the moderate[-]income units have current rents at less than the maximum moderate[-]income rent . . . rent increases shall be phased in over the first five years following election to convert until the maximum rent is reached for a moderate[-]income family." N.J.A.C. 5:80-9.13(b)2 (as amended in 2006) (emphasis added).

Overlooks asserts that this five-year phase-in period was not contemplated under the 1994 version of the regulation. However, the social impact statement for the 1994 enactment did alert the regulated community that "[f]or sponsors who elect to operate under [N.J.A.C. 5:80-9.13], rent increases for the 90 percent moderate[-]income units would be phased in over a five year period to bring rents up to HUD's maximum moderate[-] income level." 26 N.J.R. 1189 (emphasis added). This guidance was echoed in the economic statement that also was published in the New Jersey Register, which instructed that "[f]or many existing residents, rent increases will be phased in over a five year period to bring rents to HUD's maximum moderate[-]income rent level." Ibid. Given these two published contemporaneous statements of the agency's intent, we agree with the ALJ that Overlook has not demonstrated reasonable reliance on a contrary assumption, or any manifest inequity, to preclude the application of the phase-in conditions that have been clarified by the present regulation.

Overlook contends the agency's phase-in requirement is arbitrary and capricious. Because the HUD maximum rent levels for moderate-income units have typically risen about three or four percent annually, Overlook criticizes the phase-in regulation, in part, because it does not explicitly take into account such inflation when, at the same time, a sponsor is attempting to "catch up" to the present maximum level during the five-year transition.

On this limited aspect of the phase-in issue, we agree with Overlook that the regulation should include a mechanism to take into account this inflationary factor during the five-year phase-in period. The present wording of the regulation appears to be silent, and at best, ambiguous, on this point. Accordingly, we modify the agency's final decision so as to require the agency to either amend N.J.A.C. 5:80-9.13(b)2 to address this discrete point, or, alternatively, to reach a mutual agreement with Overlook and others similarly situated*fn10 to assure that the phase-in does not ignore interim inflationary trends and corresponding rises in the HUD maximum rent levels. In all other respects, we affirm the agency's final decision.

III.

For all of these reasons, the HMFA's final agency decision of September 21, 2006 is affirmed, as modified.


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