LOCAL GOVERNMENT. In this Issue: Local Government

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1 In this Issue: Local Government LOCAL GOVERNMENT You Can Fight City Hall The Faulkner Act Local Pay-to-Play Restrictions New Jersey s Redevelopment Process Surviving the Public Meeting Municipalities and the LAD Also in this issue Legal Practice Legal Writing Attorney Ethics Lawyer s Bookshelf The Legal Arts FEATURES The 10 Most Important Legal Issues Facing New Jersey Local Governments 4 by William G. Dressel Jr. You Can Fight City Hall if You Want to 7 by Hon. Jonathan N. Harris COAH s Third Round Rules:Should Municipalities be Aware or Beware? 10 by John F. Russo Jr. The Radical Transformation of Municipal Government: The Faulkner Act and Options for Change 20 by Kevin Starkey Ethics: More Than Not Being Indicted 24 by John M. Carbone Local Pay-to-Play Restrictions: An Unconstitutional Impingement on First Amendment Rights? 28 by Rebecca Moll Freed A Guide to the Local Public Contract Law 33 by Edward J. Buzak and Tiena M. Cofoni New Jersey s Redevelopment Process: Issues for Legal Consideration 39 by Bill Matsikoudis Not a Prayer:Local Disputes Over Religious Buildings 44 by Stephen Eisdorfer Municipalities and Brownfield-Contaminated Properties 50 by Nielsen V. Lewis Surviving the Public Meeting 58 by John M. Carbone and Kimberly A. Baldwin Public Employees With Disabilities: Municipalities and the Law Against Discrimination 64 by Lawrence R. Jones DEPARTMENTS President s Perspective 2 Message From the Special Editor 3 Attorney Ethics 70 Lawyer s Bookshelf 71 Legal Practice 73 Legal Commentary 77 Legal Writing 79 The Legal Arts 82 Winning Websites 83 Statement of Ownership, Management and Circulation 84

2 New Jersey s Redevelopment Process: Issues for Legal Consideration by Bill Matsikoudis The United States Supreme Court decision in Kelo v. City of New London 1 has brought the issue of eminent domain to the national forefront, and spurred legislative initiatives in numerous states, including New Jersey. That case dealt with a municipality s use of eminent domain to take property in order to convey it to a private developer so the property and surrounding areas could be redeveloped into a superior condition. Politicians in some 33 states have sought to restrict local governments ability to use eminent domain to convey property to private redevelopers. The proposals being considered in New Jersey would not only effect eminent domain, but the entire legal construct under which urban redevelopment takes place. The issues surrounding real estate development, eminent domain and, in particular, urban redevelopment are unique in New Jersey for several reasons. New Jersey is a state that has seen the division of rich and poor grow dramatically over the past 40 years. For many reasons, the state has seen an exodus of the middle class from established suburbs and urban centers. The results are well known. New Jersey has lost great amounts of open space, farms and forests while its cities have largely deteriorated: buildings have become dilapidated, criminal activity has increased and incomes have fallen. In short, over the past 40 years much of urban New Jersey has become blighted. Yet the problem of urban deterioration goes back even further, and New Jersey s 1947 Constitution sought to address this concern by giving municipalities the ability to take blighted property and transfer it to private owners for the purpose of redevelopment. The clearance, replanning, development or redevelopment of blighted areas shall be a public purpose, for which private property may be taken or acquired. Municipal, public or private corporations may be authorized by law to undertake such clearance, replanning, development or redevelopment... 2 New Jersey politicians and jurists have grappled with how to address these policy concerns and inequities. They have advocated smart growth, whereby certain policy initiatives, such as funding transportation projects like the Lite Rail, seek to lure residents back to the cities. However, the state s tradition of home rule, whereby every town has its own zoning policy, has hampered New Jersey from implementing a statewide policy to further this mission. Another phenomenon in New Jersey has made the issue more complex the impact money has had on the development process. A famous example is in Marlboro, where a developer who received numerous approvals that were inconsistent with the town s zoning policy gave substantial legal and illegal contributions to local politicians. The consequence has been the loss of open spaces and farms in exchange for sprawl. A separate but connected policy concern to the issue of redevelopment has been the availability of affordable housing. Citing the unconstitutionality of preventing low-income people from residing in many suburbs in New Jersey, the state Supreme Court issued decisions that required all municipalities to provide their fair share of affordable housing. One of NEW JERSEY LAWYER December

3 the goals of this policy was to stop the trend whereby the poor were segregated to the cities while the middle class and wealthy moved to the suburbs. 3 However, some argue that this policy is antithetical to smart growth because it promotes development in the suburbs at the expense of open space, while draining development opportunities from the cities. The problems regarding real estate development in New Jersey have a direct impact on redevelopment and the use of eminent domain, especially in the state s cities. A concern has arisen that powerless homeowners and tenants have been subject to the whim of powerful municipalities and their selected redevelopers, causing them to be uprooted for their profit. The impact of campaign contributions by those in the real estate development industry has also brought suspicion upon the process. The public advocate has attempted to address these concerns, and there is a bill currently pending in the Legislature (A-3257, sponsored by Assemblyman John Burzicehlli and its identical Senate counterpart S-2088 sponsored by Senator John Sweeney) that largely reflects his recommendations by seeking to make the exercise of eminent domain more just and equitable. S-1975, which is sponsored by Senator Ron Rice, is less ambitious in its proposed reforms. Since A-3257/S-2088 has passed one house and has generated more support, this article focuses on the provisions of that bill. There are many questions that need to be asked about the pending policy. Should there be a one-policy-fits-all approach to this issue? Coming from the perspective of Jersey City, the author argues that the Legislature needs to take a closer look at how the pending policy will impact cities that are in desperate need of redevelopment. Suburbs and cities cannot be treated the same. While a town like Red Bank may not be in great need of redevelopment, and its populace may wish to see development limited, places like Newark, Jersey City and Camden are in great need of it. Moreover, the author believes the Legislature needs to look at the true evidence of where eminent domain and the redevelopment law were abused before deciding how it should be changed. The question is: Has the use of eminent domain and the exercise of redevelopment under current law been abused in the cities, or has it been a success? The Public Advocate s Report and the Pending Legislation Currently, municipalities are responsible for redevelopment planning by: 1) undertaking a preliminary investigation to determine if an area is in need of redevelopment; 2) determining that the area is in need of redevelopment; and 3) adopting a redevelopment plan that sets forth the zoning and planning concept for the area. 4 Upon adoption of a redevelopment plan, a municipality can appoint a private entity as redeveloper who can undertake the construction necessary to bring about the redevelopment, whether that be destruction of dilapidated buildings, the renovation of existing buildings or the erection of new ones. Municipalities can also use eminent domain to acquire property from landowners who are unwilling to sell, so that an entire area can be renovated as a whole, and can also offer property tax abatements as incentives to developers after the redevelopment plan is adopted. Assembly Bill 3257, which has passed the Assembly, would effect major revisions on the Local Redevelopment and Housing Law, 5 the Municipal Land Use Law, 6 the Eminent Domain Act of 1971, 7 and the Relocation Assistance Act, 8 regarding the circumstances when a municipality may exercise the power of eminent domain to acquire property for a private redeveloper, the just compensation and relocation benefits payable to condemnees, and the process by which private redevelopers are selected. The New Jersey Constitution already sets forth a more stringent standard than that which is permitted by the U.S. Constitution, as only areas that are deemed blighted or in need of redevelopment may be condemned for private redevelopment. According to the public advocate s report, redevelopment of truly blighted areas is a legitimate public purpose that serves the greater good by helping to revitalize communities and create more opportunities for residents; however, he also asserts that the current laws do not adequately protect the rights of tenants and property owners. One of the purposes of A-3257 and S is to make eminent domain an absolute last resort. Whether eminent domain should be an absolute last resort is one question, but the author feels it certainly should not be the chosen method of acquisition. Jersey City Mayor Jerramiah Healy has made it clear that eminent domain must not be abused, as was evident when he halted the controversial acquisition of a restaurant that was to be conveyed to a catholic high school to enlarge its football field, or when the city recently completed its sixth acquisition of a private residence through negotiation in order to enable the city to construct a new police district without one parcel being acquired by eminent domain. Nonetheless, the author believes some of the public advocate s recommendations, and the pending legislation s provisions, would create bureaucracy that would obstruct the redevelopment process and strain the public/private partnership that is essential to the successful redevelopment of urban areas. What is Blighted? Pursuant to A-3257/S-2088, for an 40 NEW JERSEY LAWYER December 2006

4 area to be blighted, the municipality must pass an ordinance, as opposed to a resolution as is currently required, that the area is in need of redevelopment. The impact of this is that the governing body will have to vote on the declaration at two separate meetings, with the public having the right to be heard at the second meeting. The bill has a number of provisions intended to slow the process of redevelopment by increasing the amount of hearings and enhancing the notice requirements. While these provisions may slow the process, the author believes they are arguably beneficial by increasing the opportunity for public input into such an important process. Additionally, the criteria for an area to be declared in need of redevelopment, and thus subject to eminent domain and eligible for tax abatements, have been made more stringent. With regard to dilapidated buildings, the bill would eliminate language that declares an area blighted if there is faulty arrangement or design; lack of ventilation, light and sanitary facilities; excessive land coverage; deleterious land use or obsolete layout. More significantly, the bill also eliminates a municipality s ability to declare an area in need of redevelopment due to its lack of proper utilization, diverse ownership, or multiple landowners. The bill would require a finding of deterioration in the condition of the property that is detrimental to the safety, health, or welfare of the community, which is defined to mean substantial building or health code violations; a repeated need for police intervention over an extended period of time; or a lack of structural integrity for residential properties and lack of proper utilization of the land or structures resulting in conditions that are stagnant and not fully productive for commercial properties. Finally, the bill would delete the provision that states an area can be deemed in need of redevelopment if it would be consistent with smart growth principles. So, essentially, a property can be declared in need of redevelopment and subject to condemnation and eligible for tax abatements if: 1. the general nature of the buildings are unsafe, unsanitary or are so lacking in space and air as to make the area unconducive for healthy use; 2. the area has neglected buildings that were formerly used for commercial or industrial purposes; 3. the property is owned by a county or town or one of its subdivisions; 4. the land has been vacant for ten (10) years and is unlikely to be developed through private capital because of either its contamination, inherent nature or lack of access to developed sections and is also detrimental to the health, safety or welfare of the community; 5. the buildings in the area are so dilapidated or overcrowded so as to constitute a detriment to the health, safety or welfare of the community; 6. an area that is in deterioration due to it having multiple owners; 7. an area of five acres where buildings have been destroyed to an extent that the material value of the area has decreased; and 8. an area that has been vacant or underutilized for a period of 24 months due to environmental contamination. While the bill s goals may be laudatory, it is hard to understand what these linguistic changes will mean. The fact that the public advocate has not pointed to specific instances where the current language was abused makes it hard to ascertain what evils the bill is seeking to prevent, and whether the bill is needed at all. Moreover, the bill also raises concerns regarding whether the new stringent requirements would prevent a comprehensive redevelopment approach that may or may not use eminent domain or tax abatements in an area that would be benefit from both, but which would be excluded under the bill. What would happen to a row of single-family homes some of which are in good condition, some of which are vacant in an area where the crime is low for Newark but high for South Orange? What if the area was near a Lite Rail stop, Path station, or New Jersey Transit rail stop? What if a developer and a city wanted to build high-rises with apartments and retail outlets that would help bring ratables to an urban area, needed affordable housing, construction and longer terms jobs? Would the city be prevented from declaring the area blighted, and thus stopped from using tax abatements and eminent domain? After all, the bill eliminates underutilization and consistency with smart growth principles. 9 Thus, a judge could easily find that a city could not use the tools of eminent domain or tax abatements in such a scenario. The 20 Percent Addition Another component of A-3275/S is that an area designated to be in need of redevelopment may include other parcels that do not meet the requirements for a blight designation, but these parcels cannot constitute more than 20 percent of the entire area to be designated as available for private ownership. This is a change from the current law, which permits good properties to be included. 10 This requirement seems to abandon planning principles that areas should be looked at as a whole, and not on a parcel-by-parcel basis. There also is little justification provided for the 20 percent figure. If a city conducted a study of an area that consisted of 10 acres, and deemed NEW JERSEY LAWYER December

5 most of it blighted and suited for residential development because, for instance, it was close to mass transit, but there was a functioning factory in the middle of the area that consisted of three acres, should the city be kept from designating the area to be one in need of redevelopment? The author proposes that before this provision is endorsed and adopted, the public advocate and the Legislature analyze examples of redevelopment in urban areas that included areas that were not blighted and that constituted more than 20 percent of the total area to determine if these plans helped revive a blighted area, and if the inclusion of non-blighted areas caused an injustice to those landowners. Switching the Burden of Proof Under the public advocate s recommendation and the pending legislation, the burden of proof would be switched from a challenger of the blight designation to the municipality. Currently, redevelopment designations are vested with the presumption of validity. 11 In a major reversal, A-3275/S-2088 would require the municipality to show, by a preponderance of the evidence, that the designation meets the area in need of redevelopment criteria. This will make it more difficult for cities to designate areas to be in need of redevelopment. Currently, Jersey City has some 64 redevelopment plans, and well over half of the city is subject to zoning provisions that are provided for in these plans. While Jersey City has occasionally used eminent domain, its ability to use it has assisted in negotiations with property owners for the acquisition of land needed to bring about urban redevelopment. Moreover, Jersey City has utilized the incentive of tax abatements to spur urban redevelopment that has become a national model. The author believes this provision will hinder the city s ability to continue that success. Valuation of Acquired Properties The author believes the recommendations of the public advocate and the pending legislation would make eminent domain more expensive both in the residential and commercial context and less frequent. A-3275/S-2088 provides that a commercial condemnee would be compensated for the loss of goodwill the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage. Loss of goodwill has not previously been a compensable item. 12 Under the proposed legislation, there is no formula provided for this calculation. For residential properties, the value will be the higher of: 1) the fair market value of the property at the time it is designated blighted; 2) the fair market value of the property under the new zoning contained in the redevelopment plan; or 3) the replacement value, or the value to buy a similar home within a reasonable distance. This would replace the current law, which values the property upon the underlying zoning. For example, the famous Newport project in Jersey City was built mostly upon former rail yards. While most of the properties were acquired through negotiation, some were acquired through eminent domain. Pursuant to the law, the properties were valued using the industrial zoning that existed prior to the redevelopment plan, and an average price of $50,000 per acre was paid. Had project influence been taken into account (i.e., had residential zoning been used), the value could have easily been $250,000 per acre. These higher numbers could have prevented the project, and the area known as Newport would still be vacant instead of what it is today, where after approximately $2 billion of private investment the developers have created five million square feet of office space, some 4,000 residential units and plans for another 5,000 and two million square feet of retail space that provides jobs to the community. In fact a recent study by the Center for Urban Policy and Research School at Rutgers estimates that as of 2005 almost one quarter (23 percent) of all jobs in Jersey City (22,299 of 97,000) were located in Newport, and about 28 percent of all private sector jobs in Jersey City (22,299 of 79,926) were found in Newport. All of this economic activity was jump-started with the help of eminent domain exercised through the city s redevelopment agency. Requiring Redevelopers be Selected by RFP or RFQ The public advocate has suggested that all redevelopment agreements be awarded by request for proposal (RFP). Currently, the pending legislation provides that a request for proposal or request for qualification (RFQ) be used if a redeveloper has made a contribution after a resolution authorizing a blight study has passed. The proposal also provides that a redeveloper cannot make donations to municipal party accounts or to elected officials in the municipality after entering into a redevelopment agreement. The campaign donation restrictions would help re-establish the public s trust in the redevelopment process, but the author believes requiring that an RFP or RFQ be used could present problems. In Jersey City, there have been many occasions when a RFP or RFQ was deemed the best method to procure the best developer. When the city owns property or has heard an interest from a large community of developers, this process is the best way to ensure that the city will choose a developer with the most innovative ideas; the most solid track record; and best financial wherewithal. However, there are other occa- 42 NEW JERSEY LAWYER December 2006

6 sions where entrepreneurial developers approach the city with ideas to develop certain properties the city had not considered, or situations where developers may have unique experience or concepts. In situations like this, a city could have difficulties working with such a developer if the company thought it could lose out in a RFP process. Conclusion Before acting to drastically change the way New Jersey cities go about redevelopment, the author suggests taking a closer look at what this will mean for New Jersey s cities. While the public advocate s report provides an excellent legal analysis of the issue, factual investigation is needed regarding how the current process has violated property owners rights. Certain proposals, like the enhanced notice provisions, will create more bureaucracy but will benefit the public more by enabling them to have a better understanding of the project and more input into it. However, the cumulative impact of the proposed changes, and whether they impose too many obstacles on redevelopment, must also be considered. Additionally, there should be a review of the historic use of redevelopment in New Jersey s cities and whether it is has worked. If it has worked successfully, then why pass a law that will make it harder, both procedurally and substantively, to redevelop New Jersey s cities? Endnotes S. Ct (2005). 2. N.J. CONST. Art. VIII, Section III, Para Southern Burlington County N.A.A.C.P. v. Township of Mount Laurel, 67 N.J. 151 (1975), and Southern Burlington County N.A.A.C.P. v. Township of Mount Laurel, 92 N.J. 158 (1983). 4. N.J.S.A. 40AA:12A-4; Jersey Urban Renewal, LLC v. City of Asbury Park, 377 N.J. Super. 232, 238 (App. Div. 2005). 5. N.J.S.A. 40A:12-1, et seq. 6. N.J.S.A. 40:55D-1, et seq. 7. N.J.S.A.. 20:3-1 et seq. 8. N.J.S.A. 20:4-1 et. seq. 9. The author does not argue for the retention of the vague grounds of promoting smart growth as a reason for eminent domain; however, the author feels a replacement justification that does promote these principles should be considered. 10. See, Lyons v. City of Camden, 52 N.J. 89, 97 (1968); Forbes v. Board of Trustees, 312 N.J. Super. 519, (App. Div.), certif. denied, 156 N.J. 411 (1998); Hirth v. City of Hoboken, 337 N.J. Super. 149, 161 (App. Div. 2001); Levin v. Township Comm., 57 N.J. 506, 539 (1971), appeal dismissed, 404 U.S. 803, 92 S. Ct. 58, 30 L. Ed. 2d 35 (1973); Tri-State Ship Repair & Dry Dock Co. v. City of Perth Amboy, 349 N.J. Super. 418, 424 (App. Div. 2002). 11. ERETC, LLC v. City of Perth Amboy, 381 N.J. Super. 268, 277 (App. Div. 2005). 12. See, e.g., State v. Cooper Alloy Corporation, 136 N.J. Super. 560 (App. Div. 1975). Bill Matsikoudis is corporation counsel and director of the Jersey City Law Department. Previously he served as New Jersey senior deputy attorney general and special assistant to the director of the Division of Law. NEW JERSEY LAWYER December

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