SENATE, No. 1783




DATED:  JUNE 9, 2008


      The Senate Budget and Appropriations Committee reports favorably the Senate Committee Substitute for Senate Bill No. 1783.

      The substitute requires accountability of funds being collected for affordable housing purposes and provides guidelines in the “Fair Housing Act,” P.L.1985, c.222 (C.52:27D-301 et al.) (the “FHA”) for the Council on Affordable Housing (“COAH”) to follow in adopting its rules.

      The substitute amends the FHA to provide guidelines for COAH in setting minimum developer incentives required in connection with charging those fees, in accordance with New Jersey court decisions.  The substitute provides guidance on the manner in which municipal trust funds are to be maintained, and the purposes for which such funds are to be spent.  The substitute requires that payments-in-lieu of constructing affordable housing be maintained separately from other municipal development fees authorized to be collected.

      The substitute bill establishes a new Statewide non-residential development fee to be charged by all municipalities upon non-residential construction or improvements, at a rate of two and one-half percent of the equalized assessed value or land and improvements for all new non-residential construction on unimproved lots and at a rate of two and one-half percent of the increase in equalized assessed value for additions to existing structures to be used for non-residential purposes.

      The substitute bill forbids a municipality from charging, in connection with non-residential construction, any other fee, notwithstanding the rules of COAH.  Those municipalities that have COAH’s authorization to collect residential development fees will be permitted to retain the non-residential development fees.  Developers of non-residential properties in a municipality that does not have either COAH's or the court’s authorization to charge development fees will be required to remit the non-residential development fees to the State Treasurer, to be used for affordable housing purposes under the "Fair Housing Act" and a program created under the substitute to assist urban aid municipalities in creating units of affordable housing, in light of the bill's elimination of the regional contribution agreement from the Fair Housing Act.

      The substitute eliminates the regional contribution agreement as a method to address affordable housing needs under the FHA, but permits those agreements entered into prior to the effective date of the act to be carried out.  The substitute also establishes minimum numbers of housing units required to be set aside Statewide for very low income persons under the FHA.  The substitute requires redevelopers of redevelopment projects to replace low and moderate income housing units which are subject to affordability controls which are eliminated as a result of such activities with comparable housing, on a one-for-one basis.

      The substitute renames the “Neighborhood Preservation Nonlapsing Revolving Fund” as the “New Jersey Affordable Housing Trust Fund” and requires very specific accounting and reporting by the Department of Community Affairs on the fund’s activities.  The substitute amends  the “Fair Housing Act” to expand the types of properties  that may be excluded from being designated as vacant land, including covenant-restricted agricultural lands, lands restricted from development pursuant to environmental laws, reserved recreational sites and historic sites.

      The substitute creates the “Urban Housing Assistance Fund,” which will be funded by an annual $20 million appropriation from the State portion of the receipts of the Statewide non-residential development fees which are received directly by the State Treasurer.  The program will assist urban aid municipalities in the rehabilitation and production of housing.

      The substitute requires State agencies, when promulgating rules, to include a housing affordability impact statement and a smart growth development impact statement with the rule publication.  These statements will describe how the proposed rule will affect the availability and price of housing, and impact on new construction in planning areas 1 and 2 and designated centers.

      The substitute establishes a State Housing Commission that is directed to develop a strategic housing plan for New Jersey, as well as prepare an annual housing performance report to the Governor and the Joint Committee on Housing Affordability.  The commission will be comprised of 15 public members, of which 13 will be appointed by the Governor and two by the Legislature.  In addition, the commission will include several State department heads as non-voting members.  The substitute creates an interdepartmental working group of select department heads to guide the commission in its duties.  The commission is to review sources of funding and programs in the State to produce affordable housing, including rental housing, and develop a strategic plan which will coordinate State efforts and consolidate and leverage all available resources for these activities.  The substitute creates a new position in the Department of Community Affairs, known as the Senior Deputy Commissioner for Housing, who will chair the commission and the interdepartmental working group.

      The substitute bill fosters the ability of certain regional planning entities, to assist in the implementation of affordable housing plans for the municipalities within their respective jurisdictions.  These entities include the New Jersey Meadowlands Commission, the Pinelands Commission, the Fort Monmouth Economic Revitalization Planning Authority, and the Highlands Water Protection and Planning Council. It is the understanding of the committee that to implement this provision: (1) COAH will promulgate regulations requiring participating municipalities to approve resolutions of participation; (2) regional planning entities will provide recommendations to COAH as to whether the criteria outlined in the substitute bill were met; and (3) COAH will approve the resolutions of participation by municipalities.



      The principal fiscal impact of the substitute is the imposition of a Statewide fee on all new non-residential construction to raise revenue for the construction and rehabilitation of affordable housing.  The fee is imposed at a rate of 2.5% of the equalized assessed value of the land and improvements for all new non-residential construction on an unimproved lot or lots, and 2.5% of the increase in the equalized assessed value of the additions to existing structures to be used for non-residential purposes.  Certain exclusions from the fee are provided, such as houses of worship, non-profit hospitals, nursing homes, educational facilities, certain parking lots and recreational facilities, and projects within an urban transit hub or certain NJ transit villages.  These fees would be paid to the State by developers of non-residential properties in municipalities that are not currently certified by the Council on Affordable Housing (COAH) to collect residential development fees; otherwise they would be paid directly to the municipality where the construction occurs.

      This substitute bill provides that the first $20 million from the State portion of the new fee revenue would be deposited into a newly-created Urban Housing Assistance Fund, for the purpose of assisting urban aid municipalities in the rehabilitation and production of housing.  The remainder of State fee revenues would be deposited into the New Jersey Affordable Housing Trust Fund (currently known as the Neighborhood Preservation Nonlapsing Revolving Fund) to used for affordable housing purposes under the “Fair Housing Act,” P.L.1985, c.222 (C.52:27D-301 et al.). 

      The substitute bill provides that any municipal ordinances imposing non-residential development fees for affordable housing purposes under current COAH regulations, generally 3% of the equalized assessed value in municipalities under COAH jurisdiction that have not adopted a growth-share ordinance, become void and without effect. The bill also discontinues payments-in-lieu-of construction in connection with nonresidential development in municipalities that have adopted a growth share ordinance.  These fees are typically based on a ratio of 1 affordable housing unit per 16 jobs deemed created by the non-residential development, and vary depending on the housing region in which the development occurs and the number of jobs created per 1,000 square feet of development.

      The Office of Legislative Services (OLS) estimates an indeterminate increase in State revenue as a result of this new Statewide fee on non-residential construction, and further estimates an indeterminate effect on local revenue.  No specific estimate is feasible due to the unpredictable nature of the basis for the fee, i.e., the extent and location of new construction subject to the fee.  This will vary from year to year according to such factors as national and regional economic conditions, local planning and zoning decisions, and the impact of government development subsidies.  The OLS notes that the substitute bill allows the Department of Community Affairs to utilize annually up to 7.5 percent of the monies in the New Jersey Affordable Housing Trust Fund for the payment of administrative costs related to the administration of the “Fair Housing Act,” the State Housing Commission, or any costs related to the administration of the substitute file.

      The OLS has reviewed information obtained from the Divisions of Codes and Standards and Local Government Services in the Department of Community Affairs (DCA) to illustrate, but not to forecast, the amount of revenue that would be collected by the State if this substitute bill were to become law.  Using information contained in county budgets submitted to the Division of Local Government Services in the Department of Community Affairs (DCA) as part of the budget review process, the Office of Legislative Services has determined that the equalized assessed value of all added assessments in New Jersey for 2007, generally equivalent to new residential and non-residential construction, was $13,815,887,643.

      To discern the percentage of this total which may have been non-residential in nature, the OLS consulted the December 2007 edition of The New Jersey Construction Reporter published by the Division of Codes and Standards.  This report indicated that the Statewide dollar amount of non-residential construction authorized by building permits in 2007 was $7,054,524,983, which represented about 47% of the Statewide total of the dollar amount of all construction authorized by building permits for all construction in 2007.  To estimate the equalized assessed value of all new non-residential construction in 2007, $13,815,887,643 was multiplied by 0.47.  This calculation yielded a result of $6,538,215,025.  Two and one-half percent of this amount (the proposed fee) equals $163,455,376.  No information was reviewed by the OLS that indicated the location of any of those added assessments by municipality, so no attempt is made to illustrate how this hypothetical revenue yield would be divided between the State and municipalities under the provisions of the substitute bill.

      With respect to municipal revenue, the OLS notes that the substitute bill’s pre-emption of local ordinances imposing fees on non-residential construction at higher rates than 2.5% could, for some municipalities, result in less revenue than would otherwise be collected if this substitute bill were not enacted.

      The OLS further notes a likely indeterminate increase in State expenditures from the following provisions of the bill: the establishment of a new State Housing Commission, whose members would serve without compensation, but be reimbursed for necessary expenses incurred in the performance of their duties; the creation of a new Senior Deputy Commissioner for Housing in DCA; and the expansion of the administrative duties of COAH.

      As reported, this committee substitute is identical to the Assembly Committee Substitute for Assembly Bill No. 500 (2R).