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April 18, 2008

Affordable Housing Legislation



Dear Mayor:

The League’s special committee recently met to discuss Assembly Speaker Joseph Roberts’ legislation A-500, which proposes substantives changes to the Fair Housing Act, the Redevelopment law and proposed new law which will impact the provision of housing in New Jersey.  The purpose of this letter is to provide a summary overview of the concerns raised during the committee’s discussion. 

The focus of attention with A-500 to date has been the proposed elimination of regional contribution agreements (RCAs), which A-500 would retroactively ban effective June 1, 2006.   The bill proposes to replace the current “Neighborhood Preservation Nonlapsing Revolving Fund” with the proposed “New Jersey Affordable Housing Trust Fund.”   A-500 proposes to replace the current RCA funding with $20 million of state revenues, from the realty transfer fee, to fund housing rehabilitation in urban areas.  

While revenues from the "home sale tax" grew significantly from 2000 to 2006, the State has spent this funding.  With home sales in a downturn, it can be expected this source of revenue has and will decline for foreseeable future.   With this in mind, it seems the question has to be asked from where this funding will come, and what current initiatives might suffer as a result?  It has also to be asked, considering the current budget environment, whether this funding is sustainable and whether the League and the Urban Mayors Association, in particular, will be fighting to maintain the new funding in a few years. 

Furthermore, it was noted during the committee’s discussion that the $20 million annual figure is based on the average amount of money transferred since the inception of regional contribution agreements.  For most of that time, the minimum funding per unit was $25,000.  In 2004, COAH increased the amount to $35,000.   Now COAH proposed to increase the minimum per unit cost to a range between $67,000 and $80,000, depending on your region of the State.  Since the $20 million figure is calculated based on the earlier figures, it has not been adjusted for inflation and to reflect the increased costs proposed by COAH.   As a result, the $20 million is insufficient to cover the need for housing rehabilitation in our urban areas.

While the RCA issue will clearly be the focus of the housing policy debate, A-500 is an omnibus bill that encompasses the major points of the Speaker’s housing initiative announced last November.   For instance, A-500 would authorize by statute the collection of certain development fees and payments-in-lieu of construction of the affordable unit; practices previously authorized by COAH regulations but often challenged since it was not found in the state statutes.  A-500 requires COAH to provide the guidelines for developer incentives in connection with charging such fees. 

A-500 would put a 2.5% statewide non-residential development fee (i.e. a commercial development fee) on all commercial projects in the State, unless exempted by the Act.  Municipalities who are deemed compliant with the Fair Housing Act will have the funding returned to them.  All other revenues go to the new State run Housing Trust Fund. 

While some have represented to the League that the revenues from a 2.5% fee would generate between $125 and $150 million annually, the committee would like to see a fiscal analysis on A-500 be conducted by the Office of Legislative Services to verify such projections.   In addition, it was pointed out that the OLS should also perform a study that would evaluate the impact of such a fee on the non-residential developer and more particularly whether the imposition of such a fee will deter or discourage commercial projects from locating within the State.   Until such an analysis is conducted and issued, it is impossible to offer an opinion on the statewide development fee. 

It was also noted that because of the current uncertainty with COAH and the likelihood of litigation to set them aside the proposed regulations, it is unlikely that any municipality would be authorized to receive this funding for quite awhile (though the State would be able to collect.) 

It was further noted that none of the funding in A-500 is constitutionally dedicated.  Thus, it is very possible that this funding could, at some future date, be used for purposes other than affordable housing.

A-500 would also create the new category of “middle income” households, in addition to the existing, defined categories of low and moderate income households. “Middle income households” will be households with incomes between 80% and 110% of median income for the housing region.  This new category is designed to address the need for “workforce housing” in the State.  

While the League has been the most vocal advocate for property tax reform, and certainly supports the provision of workforce housing,  our interpretation is that this provision would effectively require COAH to determine a new housing need for the state, adding this category to the existing categories of low and moderate incomes.  As part of its proposed “3rd round” regulations, COAH promulgated an estimated need of 115,000 units for the low and moderate income households.  Adding the category of middle income households would obviously increase that number, and in turn, increase the COAH obligation that a municipality must satisfy.  The current methodology has been called into question by local governments across the State, in part due to the vacant land analysis being based on outdated information.  

The legislation would also create a new “State Housing Commission,” which will be situated in the Department of Community Affairs but is to be independent in its operations.  While the Committee did not offer an opinion on this new Commission, questions were asked about the need for a new state bureaucracy and exactly how this new commission would interact with COAH, the Office of Smart Growth and the Department of Environmental Protection.  

The League committee will meet again soon to formalize our position on A-500, but we wanted to provide you with this overview of the concerns raised by the committee over the bill.  A draft summary of the bill is available on our website, which we provide to aid in your analysis of the bill.   This is, however, a working draft and will be revised as necessary. 

We would also suggest forwarding such comments to the members of the Assembly Housing and Local Government Committee, and such contact information is available online at:, as well as to your local Assembly representatives.  We ask that you forward comments on the bill to us as well.   For more on A-500, please see our Dear Mayor letter of March 19.

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


                                                                        Very truly yours,


                                                                        William G. Dressel, Jr.
                                                                        Executive Director





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