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In re Adoption of N.J.A.C.

October 8, 2010

IN THE MATTER OF THE ADOPTION OF N.J.A.C. 5:96 AND 5:97 BY THE NEW JERSEY COUNCIL ON AFFORDABLE HOUSING.


On appeal from the Council on Affordable Housing.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued December 1, 2009

Before Judges Skillman, Fuentes and Simonelli.

Outline of Opinion

1. Introduction ..................................... 6

2. Background: Partial Invalidation by Appellate Division of Original Third Round Rules and Adoption by COAH of Revised Third Round Rules ...................................... 6

3. Pending Legislation that Would Abolish COAH ..... 16

4. Invalidating "Growth Share" Methodology for Allocating Prospective Need for Affordable Housing ......................................... 18

5. Remedy for Declaration of Invalidity of "Growth Share" Methodology: Order Requiring COAH to Use Methodology Similar to Those Used to Determine Prospective Need in Prior Rounds ..................................... 26

6. Inappropriateness of Requiring COAH to Continue Use of Projected Statewide and Regional Prospective Need Determined Under Invalid Revised Third Round Rules ............................... 29

7. Invalidating N.J.A.C. 5:97-3.2(a)(4)(iv), Which Authorizes Substantive Certification of Compliance Plans that Rely Upon Municipality-Sponsored Affordable Housing Projects Without Specifying Location of Sites or Source of Funding ......................................... 32

8. Invalidating Parts of Revised Third Round Rules that Do Not Provide Sufficient Incentives for Developers to Construct Inclusionary Developments .................................... 34

9. Invalidating N.J.A.C. 5:97-3.5, Which Authorizes Rental Bonus Credits for Prior Round Obligations ............................... 41

10. Upholding N.J.A.C. 5:97-3.18 and -3.19, Which Authorize "Smart Growth" and "Redevelopment" Bonuses ......................................... 45

11. Invalidating N.J.A.C. 5:97-3.17, Which Authorizes "Compliance" Bonuses .................. 48

12. Upholding COAH's Determination of Prior Round Affordable Housing Obligations .................. 50

13. Upholding COAH's Determination Not to Reallocate Present Need for Affordable Housing in Urban Municipalities to Other Municipalities in the Region ...................................... 54

14. Rejecting Argument that Third Round Rules Improperly Require Expenditure of Municipal Revenues to Satisfy Affordable Housing Obligations .................. 56

15. Rejecting Arguments that Third Round Rules were not Adopted in Conformity with Administrative Procedure Act ................................... 61

16. Rejecting Twenty Municipalities' Argument Regarding Definition of "Prior Round Obligations" ..................................... 66

17. Egg Harbor's Challenge to Validity of N.J.A.C. 5:97-5.8(a), Which Interprets 1000-Unit Cap Upon Affordable Housing Obligations ................... 67

18. Credits for Publicly-Financed Affordable Housing Units .................................... 68

19. Rejecting Requests for Relief in Pending Law Division Actions ................................ 69

20. Rejecting Requests to Divest COAH of Responsibility for Adopting Third Round Rules and to Appoint a Master ................... 69

21. Conclusion: COAH is Directed to Adopt New Third Round Rules Within Five Months .................. 70

1. Introduction

This opinion addresses twenty-two appeals challenging the validity of revised rules of the Council on Affordable Housing (COAH), adopted under the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329.19, which establish the obligations of municipalities to provide affordable housing during the "third round" period from 1999 to 2018 and provide mechanisms for municipalities to achieve compliance with those obligations. In In re Adoption of N.J.A.C. 5:94 and 5:95, 390 N.J. Super. 1 (App. Div. 2007) (In re N.J.A.C. 5:94), we invalidated substantial portions of COAH's original third round rules and remanded to COAH for the adoption of revised rules in conformity with our opinion. We conclude that COAH's revised third round rules suffer from many of the same deficiencies as the original third round rules. Therefore, we once again invalidate substantial portions of those rules and remand to COAH.

2. Background: Partial Invalidation by Appellate Division of Original Third Round Rules and Adoption by COAH of Revised Third Round Rules

The articulation in Southern Burlington County NAACP v. Township of Mount Laurel, 67 N.J. 151, appeal dism. and cert. denied, 423 U.S. 808, 96 S.Ct. 18, 46 L.Ed. 2d 28 (1975) (Mount Laurel I), of the Mount Laurel doctrine, under which developing municipalities were held to have an obligation to provide a realistic opportunity through their zoning for the construction of affordable housing for lower income households, and the evolution of that doctrine in Southern Burlington County NAACP v. Township of Mount Laurel, 92 N.J. 158 (1983) (Mount Laurel II), were discussed at length in our prior opinion, 390 N.J. Super. at 15-21, and therefore do not need to be repeated here.*fn1

The Legislature enacted the FHA in 1985 to confer responsibility upon an administrative agency for the administration and enforcement of the Mount Laurel doctrine. See generally Hills Dev. Co. v. Twp. of Bernards, 103 N.J. 1, 19-23, 31-40 (1986). To accomplish this objective, the Legislature assigned primary responsibility for the determination of municipal affordable housing obligations and the development of mechanisms for compliance with those obligations to COAH. Id. at 31-37. The FHA authorizes a municipality that has devised a plan for compliance with its affordable housing obligation to petition COAH for substantive certification of the plan. N.J.S.A. 52:27D-313. If COAH grants substantive certification, the municipality is insulated to a substantial extent from exclusionary zoning litigation for a period of what was previously six and is now ten years.

N.J.S.A. 52:27D-313(a).*fn2 A municipality's participation in the administrative processes established by the FHA is purely voluntary; a municipality that chooses to litigate any exclusionary zoning actions in the courts, without petitioning COAH for substantive certification, may do so. Hills, supra, 103 N.J. at 35-36.

In Hills, the Supreme Court upheld the constitutionality of the FHA. The Court stated that "[a]t this point, the presumption of constitutionality must prevail. The judiciary must assume, if the assumption is at all reasonable, that the [FHA] will function well and fully satisfy the Mount Laurel obligation." 103 N.J. at 43. The Court cautioned, however, that "[i]f, . . . as predicted by its opponents, the [FHA] . . . achieves nothing but delay, the judiciary will be forced to resume its appropriate role." Id. at 23.

In accordance with the FHA's mandates that COAH "[d]etermine housing regions," N.J.S.A. 52:27D-307(a); "[e]stimate the present and prospective need for low and moderate income housing at the State and regional levels[,]" N.J.S.A. 52:27D-307(b); and "[a]dopt criteria and guidelines for [m]unicipal determination of its present and prospective fair share of the housing need in a given region," N.J.S.A. 52:27D-307(c)(1), COAH adopted "first round" and "second round" substantive rules prescribing municipalities' affordable housing obligations for the six-year periods running from 1987 to 1993 and 1993 to 1999 and the mechanisms for achieving compliance with those obligations. N.J.A.C. 5:92-1.1 to -18.20, and App. A to F; N.J.A.C. 5:93-1.1 to -15.1, and App. A to H. Those rules were described in detail in our prior opinion, In re N.J.A.C. 5:94, supra, 390 N.J. Super. at 23-25, and there is no need to repeat those descriptions here. Suffice it to note that COAH's methodologies for determining municipal affordable housing obligations in the first and second round rules were quite similar to the methodologies that had been developed by trial courts before enactment of the FHA. See id. at 23-24.

In Township of Bernards v. State, Department of Community Affairs, 233 N.J. Super. 1, 12-22 (App. Div.), certif. denied, 118 N.J. 194 (1989), we rejected a series of challenges to parts of the COAH first round rules, except for one section dealing with the credits a municipality may claim in satisfying its affordable housing obligations. In Calton Homes, Inc. v. Council on Affordable Housing, 244 N.J. Super. 438, 446-53 (App. Div. 1990), certif. denied, 127 N.J. 326 (1991), we rejected challenges to other parts of the first round rules, except for a rule that established a 1,000-housing-unit cap on any municipality's affordable housing obligation. In In re Township of Warren, 247 N.J. Super. 146, 179-83 (App. Div. 1991), rev'd in part on other grounds, 132 N.J. 1 (1993), we rejected a challenge to COAH's regulations, incorporated in the first and second round rules, which authorized municipalities to adopt affordable housing plans that failed to provide for housing units that are affordable to households earning less than 40% of the region's median income. Thus, with limited exceptions, the challenges to COAH's first and second round and other related rules were unsuccessful.

Although COAH should have adopted its third round rules by 1999, when the effective period of the second round rules expired, COAH did not adopt its original third round rules until 2004. As we have previously noted, this delay was "dramatic and inexplicable," and "[t]he public policies underlying the FHA and the Mount Laurel cases [were], quite obviously, . . . frustrated by inaction." In re Six Month Extension of N.J.A.C. 5:91-1 et seq., 372 N.J. Super. 61, 95-96 (App. Div. 2004), certif. denied, 182 N.J. 630 (2005).

The original third round rules were "designed to permit municipalities to meet a cumulative fair share beginning in 1987 and ending on January 1, 2014." In re N.J.A.C. 5:94, supra, 390 N.J. Super. at 27. There were three major components of this cumulative fair share:

(1) a municipality's "rehabilitation share" based on the condition of housing revealed in the data gathered for the 2000 Census, previously known as a municipality's indigenous need; (2) a municipality's unsatisfied prior round obligation (1987 through 1999), satisfaction of which will be governed by the second round rules; and (3) a municipality's "growth share" based on housing need generated by statewide job growth and residential growth from 1999 through 2014. [Ibid.]

COAH's original third round rules adopted a number of significant changes in the methodologies that had been used in the first and second round rules. The most significant of those changes was the adoption of a "growth share" approach for determining a municipality's fair share of the need for affordable housing generated by jobs and residential growth during the third round period from 1999 through 2014. Under such a methodology, a municipality is not required to provide a specific predetermined number of affordable housing units but only to provide additional affordable housing if job or residential growth actually occurs in the municipality. See id. at 29-30. Another highly significant change in the third round rules was the authorization for municipalities to require developers to construct affordable housing, without providing any compensating benefit, in particular, without granting the developer permission to construct housing at a higher density than otherwise would apply under existing municipal zoning.

The Fair Share Housing Center (Fair Share) and the New Jersey Builders Association (Builders Association), both of which are also appellants in these appeals, together with two other parties, filed appeals challenging the validity of the original third round rules. Judge Cuff wrote a comprehensive opinion, which rejected some, but sustained other, of appellants' challenges to the original rules. Id. at 32-88.

Judge Cuff's opinion rejected appellants' arguments that the "rehabilitation share" of a municipality's affordable housing obligation, sometimes also referred to as present need, should include "cost burdened" low- and moderate-income households that reside in standard housing and households that lack permanent housing or live in overcrowded housing, id. at 33-38; that COAH's methodology for identifying substandard housing was "arbitrary and unreasonable," id. at 38-41; that the third round rules improperly eliminated the part of the first and second round methodologies that required reallocation of excess present need in poor urban municipalities to other municipalities in the region, id. at 56-60; that the use of regional contribution agreements to satisfy part of a municipality's affordable housing obligations violates the Mount Laurel doctrine and federal and state statutory provisions, id. at 80-81; that the allowance of bonus credits towards satisfaction of a municipality's affordable housing obligations unconstitutionally dilutes those obligations, id. at 81-84; and that the rule relating to vacant land adjustments violates the Mount Laurel doctrine and the FHA, id. at 84-86.

However, Judge Cuff's opinion invalidated the parts of the original third round rules that reduced statewide and regional affordable housing need based on "filtering," id. at 41-46; adopted a growth share approach for determining a municipality's fair share of prospective needs for affordable housing, id. at 49-56, and excluded job growth resulting from rehabilitation and redevelopment in determining job growth, id. at 61-65; compelled developers to construct affordable housing without any compensating benefits, id. at 71-75; authorized a municipality to give a developer the option of payment of a fee in lieu of constructing affordable housing, but provided no standards for setting those fees, id. at 69-71; and authorized a municipality to restrict up to 50% of newly constructed affordable housing to households with residents aged fifty-five or over, id. at 75-80.*fn3

The court's rationales for the various rulings relevant to the issues presented in these appeals are discussed later in this opinion.

Based on our conclusion that the original third round rules were invalid in a number of significant respects, we remanded to COAH to adopt revised third round rules that conformed with the FHA and the requirements of the New Jersey Constitution as interpreted in the Mount Laurel decisions. Id. at 88. We directed that the revised rules be adopted within six months. Ibid.

COAH's process of reconsideration of the third round rules included retention of a number of experts, who produced lengthy and highly complex reports regarding the amount of vacant development land in the state, projections of jobs and residential growth through 2018, and methodologies for determining municipal affordable housing obligations.*fn4 This process resulted in a lengthy delay in COAH's adoption of the revised third round rules, and we twice granted COAH extensions of time for completing the remand.

COAH finally proposed the revised third round rules in January 2008. Although it received substantial public comments objecting to the proposed rules, on June 2, 2008, COAH adopted the rules without substantial change. See 40 N.J.R. 2690(a); 40 N.J.R. 3161(a). Twenty-four notices of appeal were filed challenging the validity of the revised rules. Two of those appeals were not pursued and have been dismissed.

Thereafter, COAH proposed, and on October 20, 2008, adopted, substantial amendments to the revised third round rules, which responded to some of the objections to the rules raised during the public comment period. 40 N.J.R. 5962(a); 40 N.J.R. 5965(a). The revised rules in their final form may be found at N.J.A.C. 5:96-1.1 to -20.4, and N.J.A.C. 5:97-1.1 to -10.5 and Appendices A through F.

Appellants filed amended notices of appeal challenging the revised third round rules as amended in October 2008. We now consolidate the appeals.

3. Pending Legislation that Would Abolish COAH

Before addressing appellants' numerous arguments regarding the validity of COAH's revised third round rules, we note that the Senate passed a bill on June 10, 2010, which would abolish COAH and transfer many of its responsibilities to the Department of Community Affairs. Office of Legislative Services, New Jersey Legislative Digest, 214th Leg., 1st Sess. (June 10, 2010), at 1, 2, and 7. The Assembly Housing and Local Government Committee held a hearing on the Senate bill on June 17, 2010. Office of Legislative Services, New Jersey Legislative Calendar, 214th Leg., 1st Sess. (June 15, 2010), at 1. However, the Committee has taken no action on the bill since then. Bill Status Report on S-1, http:// www.njleg.state.nj.us/bills/BillView.asp (last visited Sept. 28, 2010). Therefore, it is difficult to predict whether this proposed legislation will be enacted.

Furthermore, even if the Assembly passed the Senate bill in its current form and the Governor signed it into law, these appeals would not be mooted. Although the Senate bill as passed would abolish COAH, Senate Comm. Substitute for S-1, 214th Legis., § 2 (2010), the bill would preserve the effectiveness, at least on a temporary basis, of the rules and regulations adopted by COAH before its abolition, including the revised third round rules challenged in these appeals. Section 18(f) of the bill provides:

The [Department of Community Affairs] may apply the regulations of [COAH] in effect at the time a petition for substantive certification was filed, or may adopt new regulations, or revisions or amendments to existing regulations, concerning petitions for substantive certification.

Section 20(d) provides:

A municipality that received substantive certification under N.J.A.C. 5:96 and N.J.A.C. 5:97, [the revised third round rules challenged in these appeals] shall be considered an inclusionary municipality pursuant to this section until the end of its approved certification period; provided that the municipality continues to fully and faithfully implement the provisions of its fair-share plan.

Section 21(c) provides:

A municipality, in evaluating the economic viability of an application for an inclusionary development, may be guided by the applicable provisions of N.J.A.C. 5:96 and N.J.A.C. 5:97, . . .

Therefore, there is no reason to delay issuance of this opinion pending possible enactment of proposed legislation that could diminish the significance of, but would not moot, these appeals.

4. Invalidating "Growth Share" Methodology for Allocating Prospective Need for Affordable Housing

One of the primary grounds upon which we invalidated substantial portions of the original third round rules was COAH's use of a "growth share" methodology to allocate the responsibility for the prospective need for affordable housing to municipalities, rather than assigning a specific numerical prospective need obligation to every municipality located in a growth area, as the first and second round rules had done. See In re N.J.A.C. 5:94, supra, 390 N.J. Super. at 23-24, 29-30, 49-50.

We invalidated the growth share methodology incorporated in the original third round rules on two grounds. First, we concluded that the record did not contain reliable data showing that "the State as a whole, and . . . each region within the State, [has] sufficient vacant developable land within growth areas to enable the [growth share] ratios to generate enough housing to meet the need[,]" and that without such data, "COAH cannot reasonably assume that its growth share methodology will provide a realistic opportunity to meet the statewide and regional need." Id. at 54. Therefore, we ruled that "the growth share methodology can be valid only if COAH has data from which it can reasonably conclude that the allocation formula can result in satisfaction of the statewide need." Ibid.

Second, and more fundamentally, we concluded that the growth share methodology adopted in the original third round rules was invalid because it allowed a municipality to avoid any substantial responsibility for satisfying its obligations to provide affordable housing by adopting land use regulations that discourage growth:

[T]he growth share approach encourages municipalities to adopt master plans and zoning ordinances that retard growth, in order to minimize the municipality's fair share allocation. . . . "Under growth share, a municipality determines where and how much it will grow, knowing that if it chooses to grow, it has an obligation to provide affordable housing as part of the growth." . . . [A]s pointed out in comments to COAH, prior experience "has documented that if permitted to do so, municipalities are likely to utilize methodologies that are self-serving and calculated to minimize municipal housing obligations." The Court has recognized that municipalities will adopt land use regulations to minimize affordable housing obligations if permitted to do so. That is why the Court [in Mount Laurel II] rejected the "simpler" approach of allocating a municipality's fair share based on the municipality's own growth projections. . . . We agree with appellants that under the ...


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