United States: Mercer County Decision, Future Of Affordable Housing In Focus At NJBA Panel

Originally published in: RealEstate NJ; Law and Public Policy Roundup, By : Joshua Burd, April 12, 2018

A recent high-profile court ruling may not have ended the battle over affordable housing in New Jersey, but insiders say it has become an important guidepost in a process that is still filled with uncertainty.

Attorneys and experts with the New Jersey Builders Association met this week to discuss the March 8 decision in Mercer County, which found that Princeton and West Windsor were drastically undercounting their obligations for affordable housing. Stakeholders say the opinion could provide a formula to determine the obligations of other towns and cities statewide — which could total more than 150,000 units — helping to resolve an issue that has vexed policymakers for nearly 20 years.

The NJBA, whose legal team was on the front lines of the marathon litigation, dissected the 217-page decision by Superior Court Judge Mary Jacobson on Tuesday as it kicked off the annual Atlantic Builders Convention in Atlantic City.

"That decision is now still sort of unraveling itself in terms of how it applies statewide," said Rick Hoff of Bisgaier Hoff LLC, one of the NJBA's lead attorneys in the case, but he believes the decision "will be incredibly influential" in the state.

He noted that stakeholders on all sides have started to apply Jacobson's methodology to every other municipality. For instance, a calculation by NJBA consultant Art Bernard, which the panel released on Tuesday, resulted in a total statewide need of about 153,000 units.

Hoff also believes that the Fair Share Housing Center and Econsult Solutions Inc., a firm hired by some 200 municipalities to calculate their obligations, are now also applying the formula.

"Those numbers are now starting to become more readily available," he said, although it remains to be seen if those calculations will be formally adopted on all sides.

"Isn't a town in Bergen County entitled to their day in court? Isn't a town in Morris County entitled to their day in court?" Hoff said. "Normally, you'd think yes. And there may be some other proceedings, where opinions may differ, but they're all the same witnesses. That's what the oddity of this is. The municipalities in Bergen have the same witness that was in Mercer."

Out of roughly 350 municipalities that were pulled into the litigation, about 190 have settled or are close to settling on their obligation and their plans to fulfill those needs, the panelists said. There are about 60 that are not close on such a deal.

Reflecting on the two years of litigation that has preceded the settlements, Stephen Eisdorfer of Hill Wallack LLP said it quickly became clear "that the judges in some counties and some vicinages became leaders, and other judges became followers" when it came to resolving the issue. That allowed the NJBA's legal team to narrow its focus to counties with trials that would serve as battlegrounds for important issues, including Middlesex and Mercer.

He also noted that judges in some vicinages quietly took control by pressuring towns to settle, as advocates with the Fair Share Housing Center stood by ready for litigation.

"While the leading counties were moving forward, some judges were very shrewd about this," said Eisdorfer, a partner with the Princeton-based firm. "They would say to their towns, 'I'm going to schedule trials and you're next.' "

Moderated by David Fisher, vice president with K. Hovnanian, the panel also included Archer & Greiner attorney Lori Grifa, Fox Rothschild attorney Henry Kent-Smith and Lara Schwager, vice president of development with PIRHL. And it came three years after the state Supreme Court stripped the Council on Affordable Housing of its oversight and turned it over to the state judiciary.

As the court continues to oversee settlements, it's unclear if the state's new governor will reassert the executive branch. COAH has been dormant since 2012, even before being stripped of its duties, but Gov. Phil Murphy's transition team cited the need to address affordable housing by coordinating policy, reducing barriers and incentivizing housing production by expanding programs and empowering other agencies.

Grifa, a former Department of Community Affairs commissioner under Gov. Chris Christie, said that includes the concept of creating a senior deputy commissioner of housing within the DCA. She was hopeful that the position would be filled by someone with institutional knowledge of housing policy and development, but said that was still to be determined.

She posed another question to the attendees at the panel, which took place at the Golden Nugget: "If DCA is going to do something, will it be the entity that reviews and enforces the settlements?"

"At least right now, I would say I don't think that's the case," Grifa said. "But I would argue that maybe that's a role for the (NJBA) — to ask DCA to get involved — because right now they have a lot of institutional knowledge, they have a lot of experience. They've seen and heard everything — from the most recalcitrant town to the most manipulative developer. They have seen all of it.

"They're uniquely positioned to provide some guidance here."

The panel also raised concerns about how to finance new development in the state, given the large obligations that have resulted from the litigation. Schwager noted that two key pieces of federal legislation "have brought a lot of changes to the tax credit world" and the subsidies that help fund affordable housing projects. The first was President Trump's tax reform law, which sharply cut the corporate tax rate and consequently tempered the demand for the Low-Income Housing Tax Credit program.

Developers often rely on the program to generate equity for 100 percent affordable housing projects. But Schwager said the new tax law has essentially "taken 15 percent off the top" of the previous pricing for the tax credits, she said, noting that banks are among the primary buyers that helped developers generate equity for their projects.

"What that means is that fewer units get built because you're not getting as much equity into the projects to do that," she said. "So that really hurt the tax credit world tremendously. The agencies had to find gap financing, towns had to find gap financing, people had to fill the gaps that were caused in this past round."

She said the other piece of legislation, the recent federal omnibus spending bill, may have helped to soften the blow. The law provided a 12.5 increase in the tax credit allocation that each state gets, the first per capita increase in more than three decades.

At the very least, it provides new options for organizations such as the New Jersey Housing and Mortgage Finance Agency, which administers the tax credits.

"In order to make up for the funding gap, they can either increase the allowable tax credits per project, so you're still getting fewer projects funded, but those projects have less of a financial gap," Schwager said. "Or they can keep the tax credits where they are and fund more projects, but that means you're funding smaller sized projects."

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