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March 4, 2009

Re:   S-2485, Commercial Development Fee

Dear Mayor:

Last Thursday, the Senate Budget and Appropriations Committee considered and approved  S-2485, which suspends the implementation of the 2.5% fee on non-residential development.   This legislation is co-sponsored by Senators Raymond Lesniak and Christopher Bateman.   To date, the 2.5% fee, which some asserted would generate $160 million annually, has actually generated about $14 million.   Even this figure is a bit deceiving, since the projects that generated this $14 million were already well into the pipeline before the effective date of the fee. 

If you recall, Governor Corzine called for a 12-month suspension of this fee, in his State of the State address, to spur economic growth in a downturn economy.  (Please see our Dear Mayor letter of January 13.)    The following day, the Governor spoke at our annual “Mayor’s Legislative Day” but he did not connect the impact of the fee reduction to an elimination of the portion of each municipality’s affordable housing obligation attributable to commercial development.  (Please see our Dear Mayor letter of January 14.)

Thus, the League called on the sponsors to link a suspension in the collection of the fee to a comparable reduction in housing obligations generated by these projects.  The logic was simple:  you cannot assign an obligation on the municipality while eliminating the corresponding funding mechanism.   The sponsors agreed, and amended the bill when it was considered and approved by the Senate Economic Growth committee on January 26.    (Please see our Dear Mayor letter of January 27.)

However, the Senate Budget and Appropriations Committee made several amendments to the bill. A handful of communities expressed concern that they had either expended funds collected by the 2.5% fee or had committed such funds to be expended, and a refund of these funds would be harmful to taxpayers.  In response, the committee added language [Section 5(d)] which explicitly authorizes municipalities to seek reimbursement from the $15 million appropriated by the bill.  (Please note that some media accounts have failed to note this amendment.)

Further, new language in the bill prevents COAH from increasing the affordable housing obligation of a municipality based on non-residential development that is exempt from the commercial fee.  PL 2008, c. 46 (“A-500”) exempted a number of developments from the fee, but did not exempt municipalities from housing obligations generated by the fee. 

New language in section 6 of the bill, however, we find to be unclear and subject to interpretation.   Earlier language had explicitly authorized municipalities to seek an adjustment to their COAH obligation based on the suspension of the 2.5% fee.   That language is now removed, and our reading of the bill is that the municipal obligation is now suspended.   The League has asked for additional clarification on this language, and will request that the language that explicitly authorized a municipality to seek an adjustment be returned to the bill.  

S-2485 now stands at 2nd reading in the Senate.   The Senate is next scheduled for a voting session on Monday, March 16 and it is a safe assumption that this bill will be scheduled for a vote.  No companion or similar bill has yet to be considered by the General Assembly.

Questions on this letter can be directed to Mike Cerra at or at (609) 695-3481 x120.  

Very truly yours,

William G. Dressel, Jr.
Executive Director




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