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Land use lawyers should pay close attention to an impending decision by the New Jersey Supreme Court that will radically impact their practice if the court rules as Fair Share Housing Center (FSHC), the New Jersey Builder’s Association (NJBA) and others advocate (hereinafter collectively “FSHC”). Indeed, the decision these litigants advocate would commandeer the use of the power to zone to advance affordable housing over all other legitimate uses of that power. Such a result would destroy the balance the Supreme Court itself said it sought to achieve between zoning for affordable housing and for other worthy purposes. See So. Burlington County N.A.A.C.P. v. Tp. of Mount Laurel, 92 N.J. 158, 214, 219-220 (1983) (“Mount Laurel II“). Perhaps more importantly, the standard these litigants seek would violate not only the plain language of the New Jersey Fair Housing Act, N.J.S.A. 52:27D-301 et seq. (FHA), but also the Legislature’s clear goal of providing relief from the enormous fair share burdens generated by the formula set forth in AMG Realty Co. v. Warren Tp., 207 N.J. Super. 388 (Law Div. 1984). N.J.S.A. 52:27D-302 (d).

The ruling FSHC seeks arises from their challenge to the Appellate Division’s decision in a case entitled In re Declaratory Judgment Actions Filed by Various Municipalities, Cty. of Ocean, 446 N.J. Super. 259 (App. Div. 2016), appeal granted, stay granted sub nom. In re Declaratory Judgment Actions, No. 077565 (N.J. Sept. 8, 2016) (“the Gap Decision”). In the Gap Decision, the Appellate Division refused to rewrite the FHA to expand the constitutional obligation beyond the limits the Legislature established. Basing its ruling on fundamental principles of statutory interpretation, and consistent with Supreme Court precedent, the Appellate Division held that the FHA authorized the imposition of an obligation for the Present and Prospective Need only—not an additional retrospective obligation. Id. at 267.

The Prospective Need

The Appellate Division ruled that the Legislature had clearly defined Prospective Need as “a projection of housing needs based on development and growth that is reasonably likely to occur” in a future 10-year period. N.J.S.A. 52:27D-304(j) and 307 (c)(1). Id. at 284. Therefore, the Appellate Division rejected the claim by FSHC that the courts should expand the 10-year Prospective Need to include an additional obligation for a need that it claimed had accrued in the last 16 years for “the gap” (a term the refers generally to the period in which COAH failed to adopt valid regulations). Id.

The Present Need

The Supreme Court, consistent with two Appellate Division rulings, had clearly ruled that the Present Need constituted only low and moderate income (LMI) households residing in deteriorated or overcrowded units. In Re Adoption of N.J.A.C. 5:96, 221 N.J. 1, 30-31 (2015) (“Mount Laurel IV“). Since FSHC sought to impose an obligation for lower income households already residing in adequate housing, it did not even attempt to argue that the Legislature had authorized the imposition of a Gap Period retrospective obligation as a component of the Present Need. Indeed, at oral argument before the Supreme Court, FSHC conceded that a Gap Period obligation was not part of the Present Need.

In ruling that the FHA did not authorize the imposition of a “retrospective” obligation, the Appellate Division rejected the argument that COAH’s imposition of a retrospective obligation empowered the trial judge to require such an obligation. Since COAH only has those powers the Legislature gave it, the Appellate Division correctly ruled that to the extent that COAH imposed an obligation that exceeded the Present and Prospective Need obligation, it exceeded its authority. Gap Decision at 283

In confining the constitutional obligation to the Present and Prospective Need as the Supreme Court did in Mount Laurel I and II, and as the Legislature did in the FHA, the Appellate Division maintained important precedent critical to the future of planning and zoning in our state. (Indeed, had the Legislature never enacted the FHA, and a court were to determine whether a municipality satisfied its constitutional obligation based on the definition of that obligation in Mount Laurel II, the court’s sole inquiry would be whether the municipality satisfied its Present and Prospective Need obligation.)

First, by eliminating the imposition of a Gap Period obligation, the Appellate Division increased the likelihood that the fair share obligations would not soar to patently impractical levels, which would generate more controversy, but little additional affordable housing. That is because the market and the availability of funding drive the production of affordable housing, not the imposition of patently unrealistic fair share obligations.

Second, the Appellate Division rejected the foundation of the Gap Period argument: namely that the Legislature intended the obligation to be “cumulative.” More specifically, FSHC contended that the obligation purportedly started to accrue on July 1, 1987, the first day of Round 1, and accumulated indefinitely thereafter. The rejection of the “cumulative” argument enables the Act to operate as the Legislature designed it.

Third, the ruling preserved the balance the Supreme Court described in Mount Laurel II, 92 N.J. at 219-220, and that the Legislature demanded when it enacted the FHA. N.J.S.A. 52:27D-302(d). All these salutary benefits will disappear if the Supreme Court rewrites the FHA and/or reinterpret the Constitution as FSHC advocates.

Three Perspectives on the 315,000 Round 3 Obligation FSHC Advocates

(1) Growth In New Jersey

Since the year 2000 when the State began tracking CO data, the State has issued an average of just under 21,000 COs per year for all residential units in the entire state. www.state.nj.us/dca/divisions/codes/reporter/co.html. Assuming this rate of growth for the 10-year Prospective Need period (2015-2025), the State would issue roughly 210,000 residential Cos—a far cry from the 315,000 affordable housing units FSHC advocates just for Round 3. Indeed, if every one of the 210,000 residential units constructed over the 10-year period were a deed restricted affordable unit, we would still fall far short of satisfying the obligation that FSHC contends that the Constitution mandates.

(2) The AMG Perspective

An examination of the history of the Mount Laurel doctrine inescapably reveals that the issuance of the AMG opinion in 1984 precipitated the enactment of the FHA just one year later. The AMG formula generated a massive statewide Present and Prospective need obligation of 242,760-units, which pales in comparison to the 315,000 obligation FSHC advocates just for the Prospective Need in Round 3. Charles M. Haar, “Suburbs under Siege: Race, Space, and Audacious Judges” at p.229 n.46 (Princeton University Press (1996). The AMG number caused the Legislature to mandate “reasonable” fair share numbers in stark contrast to the AMG numbers, which the Legislature and public viewed as grossly excessive. N.J.S.A. 52:27D-302(d). Hence, the Legislature required Prospective Need to be based upon a “projection of growth and development reasonably likely to occur ….” N.J.S.A. 52:27D-304(j). By so doing, our Legislature ensured that obligations would always be rooted in the realities of the marketplace. The incorporation of the realities of the marketplace into the definition of Prospective Need marked a dramatic departure from Mount Laurel II wherein market factors impacted whether the municipality satisfied its assigned obligation—not what obligation should be assigned in the first instance. Compare id. with Mount Laurel II at 221-22 (wherein the Supreme Court stated that “whether the opportunity is ‘realistic’ will depend on whether there is in fact a likelihood—to the extent economic conditions allow—that the lower income housing will actually be constructed.”)

(3) The Compliance Perspective

Towns seeking to comply with their fair share obligations must create a “realistic opportunity” for satisfaction of its fair share number. N.J.S.A. 52:27D-311, 314 and 317. If the fair share number is unrealistic, then creating a realistic opportunity to satisfy that number is equally unrealistic. Only one expert, Robert Powell from Nassau Capitol Advisors has opined as to how many affordable units can be generated through standard inclusionary zoning where the municipality requires residential developers to reserve 20 percent of all the units in a project as affordable. Through this technique, the expert opines that only 17,000-24,000 affordable units can be generated during the 2015-2025 Prospective Need period. See www.njslom.org/legislation/NCA092815.pdf.

The other major source of affordable housing is 100 percent affordable projects. We can reasonably expect that this technique will produce under 5,000 affordable units per year over a 10- year period based on FSHC’s own analysis. See New Jersey Fair Share Housing Obligations for 1999-2025 (Third Round) Under Mount Laurel IV, dated May 17, 2016, at page 101 (prepared by David N. Kinsey, FAICP in collaboration with FSHC).

Together, tax credit projects and standard inclusionary zoning generated about 85 percent of all affordable housing provided in the past. Id. Thus, inclusionary zoning and tax credit projects will yield fewer than 30,000 units total during the Prospective Need period, a figure that is less than 10 percent of the 315,000 Prospective Need obligation advocated by FSHC.

The FHA provides that “[n]othing [in the FHA] shall require a municipality to raise or expend municipal revenues in order to provide low and moderate income housing.” N.J.S.A. 52:27D-311 (d). However, if the fair share obligations are excessive, it would force municipalities to fund tax credit projects with municipal revenues in violation of the FHA to make the project realistic.

The 315,000 unit obligation, like the 243,000 obligation generated by the AMG formula, is subject to credits and adjustments. However, the Legislature clearly intended to establish reasonable fair share obligations subject to credits and adjustments, not to establish unreasonable fair share burdens then apply credits and adjustments to make them less unreasonable. N.J.S.A. 52:27D-302 (d) and 307.

A Cumulative Approach

While FSHC bases its position on its claim that fair share obligations are cumulative, neither the Supreme Court in Mount Laurel I or II; nor the Legislature in the FHA ever authorized the imposition of cumulative obligations. If the Supreme Court rewrites the FHA to require that affordable housing obligations are cumulative, the obligation to zone to provide affordable housing will vitiate the power of a municipality to use its zoning powers to advance other worthy public purposes. With each new housing cycle, the impracticality of such an approach magnifies exponentially.

The Balance All Three Branches of Government Desired

In 1983, the Supreme Court insisted upon the establishment of bright line standards given its frustration with the “widespread noncompliance” of municipalities in response to Mount Laurel I. Mount Laurel II, 92 N.J. at 292. However, the court never viewed the fair share standards to be scientific. Id. at 257. It certainly never intended fair share obligations to overwhelm a municipality. Indeed, it reassured all concerned “that Mount Laurelis not designed to sweep away all land use restrictions.” Id. at 219. It emphasized that compliance with Mount Laurel would require just “some change.” Ibid. It clearly signaled that its goal of creating affordable housing must be balanced against the other legitimate uses of a municipality’s zoning powers. Id. at 219-220. Indeed, the court appealed to municipalities desire to control their “zoning destiny” as the incentive for municipalities to comply so they could preserve these home rule powers. Id. at 214.

In conclusion, in a perfect world, no lower income household would be left without a decent unit it could afford. However, the Legislature enacted the FHA because it is an imperfect world, and the obligations had to be based upon the reality of development and growth reasonably likely to occur. N.J.S.A. 52:27D-304 (j).

Ultimately, the court must decide a basic question: Does the FHA authorize the imposition of a retrospective obligation? If not, as the Appellate Division recognized, the Supreme Court cannot, under the rule of law and precedent that it established, rewrite the FHA as FSHC advocates. The Supreme Court’s answer to this question could have a profound impact on how municipalities use their power to zone.

Land use lawyers should pay close attention to an impending decision by the New Jersey Supreme Court that will radically impact their practice if the court rules as Fair Share Housing Center (FSHC), the New Jersey Builder’s Association (NJBA) and others advocate (hereinafter collectively “FSHC”). Indeed, the decision these litigants advocate would commandeer the use of the power to zone to advance affordable housing over all other legitimate uses of that power. Such a result would destroy the balance the Supreme Court itself said it sought to achieve between zoning for affordable housing and for other worthy purposes. See So. Burlington County N.A.A.C.P. v. Tp. of Mount Laurel , 92 N.J. 158, 214, 219-220 ( 1983 ) (” Mount Laurel II “ ). Perhaps more importantly, the standard these litigants seek would violate not only the plain language of the New Jersey Fair Housing Act, N.J.S.A. 52:27D-301 et seq. ( FHA ) , but also the Legislature’s clear goal of providing relief from the enormous fair share burdens generated by the formula set forth in AMG Realty Co. v. Warren Tp. , 207 N.J. Super. 388 ( Law Div. 1984 ) . N.J.S.A. 52:27D-302 (d) .

The ruling FSHC seeks arises from their challenge to the Appellate Division’s decision in a case entitled In re Declaratory Judgment Actions Filed by Various Municipalities, Cty. of Ocean, 446 N.J. Super. 259 (App. Div. 2016), appeal granted, stay granted sub nom. In re Declaratory Judgment Actions, No. 077565 (N.J. Sept. 8, 2016) (“the Gap Decision”). In the Gap Decision, the Appellate Division refused to rewrite the FHA to expand the constitutional obligation beyond the limits the Legislature established. Basing its ruling on fundamental principles of statutory interpretation, and consistent with Supreme Court precedent, the Appellate Division held that the FHA authorized the imposition of an obligation for the Present and Prospective Need only—not an additional retrospective obligation. Id. at 267.

The Prospective Need

The Appellate Division ruled that the Legislature had clearly defined Prospective Need as “a projection of housing needs based on development and growth that is reasonably likely to occur” in a future 10-year period. N.J.S.A. 52:27D-304(j) and 307 (c)(1). Id. at 284. Therefore, the Appellate Division rejected the claim by FSHC that the courts should expand the 10-year Prospective Need to include an additional obligation for a need that it claimed had accrued in the last 16 years for “the gap” (a term the refers generally to the period in which COAH failed to adopt valid regulations). Id.

The Present Need

The Supreme Court, consistent with two Appellate Division rulings, had clearly ruled that the Present Need constituted only low and moderate income (LMI) households residing in deteriorated or overcrowded units. In Re Adoption of N.J.A.C. 5:96, 221 N.J. 1, 30-31 (2015) (“Mount Laurel IV“). Since FSHC sought to impose an obligation for lower income households already residing in adequate housing, it did not even attempt to argue that the Legislature had authorized the imposition of a Gap Period retrospective obligation as a component of the Present Need. Indeed, at oral argument before the Supreme Court, FSHC conceded that a Gap Period obligation was not part of the Present Need.

In ruling that the FHA did not authorize the imposition of a “retrospective” obligation, the Appellate Division rejected the argument that COAH’s imposition of a retrospective obligation empowered the trial judge to require such an obligation. Since COAH only has those powers the Legislature gave it, the Appellate Division correctly ruled that to the extent that COAH imposed an obligation that exceeded the Present and Prospective Need obligation, it exceeded its authority. Gap Decision at 283

In confining the constitutional obligation to the Present and Prospective Need as the Supreme Court did in Mount Laurel I and II, and as the Legislature did in the FHA, the Appellate Division maintained important precedent critical to the future of planning and zoning in our state. (Indeed, had the Legislature never enacted the FHA, and a court were to determine whether a municipality satisfied its constitutional obligation based on the definition of that obligation in Mount Laurel II, the court’s sole inquiry would be whether the municipality satisfied its Present and Prospective Need obligation.)

First, by eliminating the imposition of a Gap Period obligation, the Appellate Division increased the likelihood that the fair share obligations would not soar to patently impractical levels, which would generate more controversy, but little additional affordable housing. That is because the market and the availability of funding drive the production of affordable housing, not the imposition of patently unrealistic fair share obligations.

Second, the Appellate Division rejected the foundation of the Gap Period argument: namely that the Legislature intended the obligation to be “cumulative.” More specifically, FSHC contended that the obligation purportedly started to accrue on July 1, 1987, the first day of Round 1, and accumulated indefinitely thereafter. The rejection of the “cumulative” argument enables the Act to operate as the Legislature designed it.

Third, the ruling preserved the balance the Supreme Court described in Mount Laurel II, 92 N.J. at 219-220, and that the Legislature demanded when it enacted the FHA. N.J.S.A. 52:27D-302(d) . All these salutary benefits will disappear if the Supreme Court rewrites the FHA and/or reinterpret the Constitution as FSHC advocates.

Three Perspectives on the 315,000 Round 3 Obligation FSHC Advocates

(1) Growth In New Jersey

Since the year 2000 when the State began tracking CO data, the State has issued an average of just under 21,000 COs per year for all residential units in the entire state. www.state.nj.us/dca/divisions/codes/reporter/co.html. Assuming this rate of growth for the 10-year Prospective Need period (2015-2025), the State would issue roughly 210,000 residential Cos—a far cry from the 315,000 affordable housing units FSHC advocates just for Round 3. Indeed, if every one of the 210,000 residential units constructed over the 10-year period were a deed restricted affordable unit, we would still fall far short of satisfying the obligation that FSHC contends that the Constitution mandates.

(2) The AMG Perspective

An examination of the history of the Mount Laurel doctrine inescapably reveals that the issuance of the AMG opinion in 1984 precipitated the enactment of the FHA just one year later. The AMG formula generated a massive statewide Present and Prospective need obligation of 242,760-units, which pales in comparison to the 315,000 obligation FSHC advocates just for the Prospective Need in Round 3. Charles M. Haar, “Suburbs under Siege: Race, Space, and Audacious Judges” at p.229 n.46 (Princeton University Press (1996). The AMG number caused the Legislature to mandate “reasonable” fair share numbers in stark contrast to the AMG numbers, which the Legislature and public viewed as grossly excessive. N.J.S.A. 52:27D-302(d) . Hence, the Legislature required Prospective Need to be based upon a “projection of growth and development reasonably likely to occur ….” N.J.S.A. 52:27D-304(j) . By so doing, our Legislature ensured that obligations would always be rooted in the realities of the marketplace. The incorporation of the realities of the marketplace into the definition of Prospective Need marked a dramatic departure from Mount Laurel II wherein market factors impacted whether the municipality satisfied its assigned obligation—not what obligation should be assigned in the first instance. Compare id. with Mount Laurel II at 221-22 (wherein the Supreme Court stated that “whether the opportunity is ‘realistic’ will depend on whether there is in fact a likelihood—to the extent economic conditions allow—that the lower income housing will actually be constructed.”)

(3) The Compliance Perspective

Towns seeking to comply with their fair share obligations must create a “realistic opportunity” for satisfaction of its fair share number. N.J.S.A. 52:27D-311 , 314 and 317. If the fair share number is unrealistic, then creating a realistic opportunity to satisfy that number is equally unrealistic. Only one expert, Robert Powell from Nassau Capitol Advisors has opined as to how many affordable units can be generated through standard inclusionary zoning where the municipality requires residential developers to reserve 20 percent of all the units in a project as affordable. Through this technique, the expert opines that only 17,000-24,000 affordable units can be generated during the 2015-2025 Prospective Need period. See www.njslom.org/legislation/NCA092815.pdf.

The other major source of affordable housing is 100 percent affordable projects. We can reasonably expect that this technique will produce under 5,000 affordable units per year over a 10- year period based on FSHC’s own analysis. See New Jersey Fair Share Housing Obligations for 1999-2025 (Third Round) Under Mount Laurel IV, dated May 17, 2016, at page 101 (prepared by David N. Kinsey, FAICP in collaboration with FSHC).

Together, tax credit projects and standard inclusionary zoning generated about 85 percent of all affordable housing provided in the past. Id. Thus, inclusionary zoning and tax credit projects will yield fewer than 30,000 units total during the Prospective Need period, a figure that is less than 10 percent of the 315,000 Prospective Need obligation advocated by FSHC.

The FHA provides that “[n]othing [in the FHA] shall require a municipality to raise or expend municipal revenues in order to provide low and moderate income housing.” N.J.S.A. 52:27D-311 (d) . However, if the fair share obligations are excessive, it would force municipalities to fund tax credit projects with municipal revenues in violation of the FHA to make the project realistic.

The 315,000 unit obligation, like the 243,000 obligation generated by the AMG formula, is subject to credits and adjustments. However, the Legislature clearly intended to establish reasonable fair share obligations subject to credits and adjustments, not to establish unreasonable fair share burdens then apply credits and adjustments to make them less unreasonable. N.J.S.A. 52:27D-302 (d) and 307.

A Cumulative Approach

While FSHC bases its position on its claim that fair share obligations are cumulative, neither the Supreme Court in Mount Laurel I or II; nor the Legislature in the FHA ever authorized the imposition of cumulative obligations. If the Supreme Court rewrites the FHA to require that affordable housing obligations are cumulative, the obligation to zone to provide affordable housing will vitiate the power of a municipality to use its zoning powers to advance other worthy public purposes. With each new housing cycle, the impracticality of such an approach magnifies exponentially.

The Balance All Three Branches of Government Desired

In 1983, the Supreme Court insisted upon the establishment of bright line standards given its frustration with the “widespread noncompliance” of municipalities in response to Mount Laurel I. Mount Laurel II, 92 N.J. at 292. However, the court never viewed the fair share standards to be scientific. Id. at 257. It certainly never intended fair share obligations to overwhelm a municipality. Indeed, it reassured all concerned “that Mount Laurelis not designed to sweep away all land use restrictions.” Id. at 219. It emphasized that compliance with Mount Laurel would require just “some change.” Ibid. It clearly signaled that its goal of creating affordable housing must be balanced against the other legitimate uses of a municipality’s zoning powers. Id. at 219-220. Indeed, the court appealed to municipalities desire to control their “zoning destiny” as the incentive for municipalities to comply so they could preserve these home rule powers. Id. at 214.

In conclusion, in a perfect world, no lower income household would be left without a decent unit it could afford. However, the Legislature enacted the FHA because it is an imperfect world, and the obligations had to be based upon the reality of development and growth reasonably likely to occur. N.J.S.A. 52:27D-304 (j) .

Ultimately, the court must decide a basic question: Does the FHA authorize the imposition of a retrospective obligation? If not, as the Appellate Division recognized, the Supreme Court cannot, under the rule of law and precedent that it established, rewrite the FHA as FSHC advocates. The Supreme Court’s answer to this question could have a profound impact on how municipalities use their power to zone.