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May 15, 2008
Re: S-1783, Commercial Development Fee



Dear Mayor:

S-1783, which imposes a statewide 2.5% fee on non-residential development to fund affordable housing, is posted for a hearing by the Senate Economic Growth Committee for this Monday, May 19.    The League has not taken a position yet, but we are seeking an important amendment to protect our taxpayers.

This concept is also is in Speaker Roberts’ bill, A-500.  Senator Lesniak, who chairs the Senate committee, has extracted this one concept from A-500. Ostensibly, this fee would replace the payment-in-lieu provision for non-residential developers in the COAH third round regulations, which were generally viewed as damaging to commercial development in the State.  

We note for the record that League is strongly opposed to A-500 (see our Dear Mayor letter of May 6.)    We are not, however, necessarily opposed to the concept of the statewide development fee.   But we do have some concerns with S-1783.

In publishing its third round regulations, COAH projected a statewide housing need of just over 115,000 affordable housing units through 2018. (These projections are, as you know, very controversial but right now it is the best data we have to analyze the impact of a fee on non-residential development.)

Our concerns arise from a basic question:  will the 2.5% fee generate a sufficient subsidy to construct the 46,000 units that are attributable to non-residential development?   Based on DCA estimates, the amount generated is woefully inadequate to satisfy the obligation

Of the 115,000 total projected need, 40%, or 46,000 affordable housing units, is assumed to be generated by commercial development.  It is our understanding that the DCA estimates that based on historical data from 2003 through 2006 that approximately $125 million will be generated annually as a result of a 2.5% commercial development fee.   It has been estimated that an $80,000 cash subsidy coupled with federal tax credits is needed to construct a single unit of affordable housing, based upon estimated sales prices. Thus, we estimate that approximately 1,600 units can be subsidized annually at these levels of funding.  Over the 10 year period (2008-2018) approximately 16,000 units can be subsidized out of a projected obligation created by that very same non-residential development of 46,000 units. 

We understand that the Department of Community estimates that over the ten-year period that just over 19,000 units can be financed, as opposed to our estimates of 16,000.   While our estimates might differ, both underscore the same problem:  will property taxpayers be compelled to subsidize the shortfall in this funding?    

Based on this, we believe that the bill should also relieve local taxpayers: any housing obligation generated by commercial development should only be included in growth share if it is funded by the proceeds of the Affordable Housing Trust Fund.  

The Senate Economic Growth Committee meets on Monday to consider the bill.    We strongly suggest contacting the committee and ask them to amend the bill to provide that a municipality shall only have a growth share obligation for affordable units as a result of commercial development if the unit is subsidized out of the trust fund created from the 2.5% development fee.  In that way, the property taxpayer is left whole, and the housing is provided to the extent the trust fund provides the subsidy necessary to construct.

For more on this bill, please contact Mike Cerra at or at 609-695-3481 x120.

Thank you.


                                                                        Very truly yours,


                                                                        William G. Dressel, Jr.
                                                                        Executive Director





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