Fox Rothschild LLP ATTORNEYS AT LAW

FEBRUARY 2009

Animal House Re-Lived 1: A Depiction of New Jersey’s Current Affordable Housing Landscape By Thomas Daniel McCloskey

The Intro Movie aficionados will never forget that 1978 mega-hit, Animal House , the hilarious, side-splitting and rambunctious look at college fraternities and sororities here in the U.S., and the antics that almost uniformly arise from the feuds and interactions of college administrations, their faculties, local communities, students and, of course, the Greek systems established campus-wide to provide social outlets for the student body. Those who have seen the movie will, no doubt, vividly recall the story of the two feuding frat houses at fictional Faber College circa 1962: “Delta House,” the wild and worst frat on campus, so obnoxious that it included among its members just about anybody – from the cool and super smooth Otter and Boon, resident wildman “7 years of college down the drain” John “Bluto” Blutarsky, to the school’s most socially awkward losers; and “Omega House,” the conservative anti-thesis of Delta comprised of nothing but white, Anglo-Saxon, uppity rich guys so holier-than-thou they were reviled by everyone save the chief college officer, DeanVernon Wormer. I, for one, will never forget the high- jinks of the Delta House members, the havoc they wreaked through endless parties, a love and penchant for practical jokes, their unending battles with the Omega’s, the “trial” leading to the revocation of the Delta House charter before Omega’s Doug Niedermeyer and the Student Court, the penultimate showdown with Dean Wormer after he enlisted Omega House to help him “kick those punks right off of this campus,” and the movie’s ending climax at the Faber Day parade. As I reflected on the most notable legal events of this year just past, I never imagined there could be a series of uncanny resemblances between the most memorable scenes and sound-bites from that movie, and what actually played itself out here in New Jersey in the affordable housing arena of social engineering. Imagery and analogy are, after all, beautiful and oft-times effective ways of making a point. So, in disbelief there could be such analogies, I took to the task of outlining the chronology of salient events and commentary (bolded thusly ), and, in pertinent part, this is what it looked (and sounded!) like to me: The Plot Summary The year just concluded marked the 25th anniversary of our Supreme Court’s decision in Mt. Laurel II . In that matter, the High Court - annoyed that municipalities had done nothing in the intervening eight years of its seminal affordable housing decision in Mt. Laurel I “to provide realisitc opportunities for a variety and choice” of affordable housing in meeting their constitutionally mandated obligation

1 National Lampoonʼs Animal House , directed by John Landis and written by Harold Ramis, Douglas Kenney and Chris Miller; Ivan Reitman and Matty Simmons, Producers (Universal Pictures, 1978).

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com to provide for their fair shares – fashioned the enforcement device known commonly as the “builders remedy.” In short, the remedy provided builder-developers the right to bring legal action against recalcitrant municipalities to force, judicially, approvals of residential development projects that proposed to include components of housing product affordable to those of low to moderate income households. A rash of such suits were brought in the wake of Mt. Laurel II , prompting fears by municipalities that the courts would be dictating to them how and where residential development (with and without affordable housing) would be implemented. Tensions immediately fomented and reached a feverish pitch between and among the judicial, legislative and executive branches of government over who was the more responsible, and equipped, agency of government to socially engineer housing policy and implement construction state-wide. The end result was the Legislature’s enactment of the “Fair Housing Act of 1985” and its creation of the state agency known as the “Council on Affordable Housing,” or “COAH,” which now by statute, was charged with the regulatory responsibility to oversee and develop a uniform set of substantive and procedural regulations that ostensibly would facilitate the implementation of the mandates of both Mt. Laurel I and Mt. Laurel II . While co-extensive with the judicially fashioned “builders remedy” process, for towns that sought to voluntarily comply with COAH’s labyrinth of ensuing substantive and procedural regulations, such towns would enjoy a “safe harbor” immunity from builders remedy actions while they undertook to comply. Now fast forward. Over the 25 years that ensued from the Court’s Mt. Laurel II decision, a reported 60,000 plus or minus “affordable housing units” were constructed within the more vulnerable of New Jersey’s 566 municipalities, i.e ., those with developable land, and during no less than two construction boom cycles. Recent judicial intervention in the process, discussed below, invalidated COAH’s “third round rules” as having been, in material part, defective and trumped-up in such a way that, the Appellate Division concluded, recklessly if not deliberately underestimated the affordable housing need state-wide and over-stated the successes of municipal compliance with affordable housing obligations. Ordered by the Court to revamp, revise and re-promulgate new rules that would rectify the deficiencies detected, COAH adopted a new set of “third round” rules on May 6, 2008 that resulted in a re-calculation of need at some 115,000 affordable housing units state-wide yet to be met; and further, a dramatic alteration of the methodology by which towns could and would “pass through” its development obligations to developers. Known as “growth share,” towns would be empowered to impose upon developer’s their “fair share” of the town’s “fair share” – and for the first time ever introduced into the equation the developers of both residential and “non-residential,” or commercial development projects effectively subsidize a municipality’s compliance efforts. Here’s one glaring, simple fact. As we begin the new year, with what is presently on the books – unless or until overturned by the courts, modified, vacated or revised, re-introduced and re-enacted in some new form or another by the executive branch, the Legislature, administrative bodies or the courts – no less than 115,000 affordable housing units must be built and/or somehow otherwise created in New Jersey by 2018. With the advent of 2009, and both the state’s and national economies “tanking,” that’s a mere nine years left to incentivize, fund, actually build and deliver almost twice as many affordable housing units than the 60,000 affordable housing units, which in fact, were delivered during the full 25 years that have elapsed since the Mt. Laurel II decision in 1983. Builders and developers are bleeding to death. Small businesses are struggling to meet payroll each week, and even the most successful and/or creditworthy business enterprises cannot get their banks to advance credit. And, with COAH’s own newly adopted Third Round Rules, depending upon what region a town falls within, the range of estimated costs COAH has established for the construction of one new affordable housing unit and alternative payment-in-lieu purposes – i.e ., of between $145,000 - $182,000 -- raises this troubling arithmetic quandary. Taking the simple average of that range, i.e .,

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com $163,500, when you do the math, $163,500 X 115,000 equals $18.8 billion. Where is that incredibly large sum of investment capital going to come from, especially in these precarious economic times, over the next 9 years? I’m quite certain no provision was made for a New Jersey affordable housing bail-out in Congress’ “white-collar welfare” initiative known as the “Troubled Asset Recovery Program,” or “TARP,” that was rammed through before year’s end ostensibly to prop up failing credit markets. As we’ve quickly come to see, TARP is now being picked away at by the auto industry and potentially every and any other industry in need – even the porn industry has its hand out! -- like crows feeding on a recent road kill. It’s not quite clear who first planted, and then punched that proverbial ball of cottage cheese out of the cheeks and mouth of Blutarsky that served up the scream of “Food Fight” here. Arguably, the Appellate Division’s decision of January 25, 2007 invalidating COAH’s then version of its Third Round Rules might qualify as the trigger designation – or, from one perspective of the legal concept of causation, the “efficient cause.” Of course, other innumerable contributing causes had been occurring or building up in the interim of that decision to provoke it. Regardless, what is clear is what ensued. The same or similar tensions between and among the executive, legislative and judicial branches of our state government that fomented to their fever pitch and the resultant enactment of the Fair Housing Act in 1985 – following Mt. Laurel I in 1975 and Mt . Laurel II in 1983 – are back in full swing. As Yogi Berra might observe, “[i]t’s deja vu all over again.” As you consider the following, picture in your mind the resemblant, inter-woven scenes, quotes, sights and sounds of Animal House inter-spersed throughout. If spliced together and made into a movie, the result could be its sequel. I guarantee a whole host of representatives of those intimately involved in the affordable housing matrix – whether it be in the executive, legislative or judicial branches of government; the COAH, Highlands Council, DEP, DCA regulatory arms of state government; local, county and state government officials and respective in-house and outside professional staffs; local government attorneys; zoning, land use and planning attorneys, litigators, developers, builders, planners, engineers, affordable housing advocates, environmentalists - would be seen mixing it up, with no end in sight but the resultant mess, and far more than the feuding Delta and Omega campus types portrayed in Animal House . We may very well be on the critical path to a Faber Day parade-type of climax!

Roll the Film Enter the Judiciary – The Prologue :

• On January 25, 2007 , the Appellate Division issued its now infamous decision in the matter of In Re: Adoption of N.J.A.C. 5:94 & 5:95, by New Jersey Council on Affordable Housing, 390 N.J.Super . 1 (App. Div.), certif. denied , 192 N.J . 72 (2007), invalidating the 2004 version of COAH’s “third round rules” on constitutional and other grounds.

[Campus cafeteria – Bluto, Babs and Greg Marmalard eating ]

Bluto: (Inserts cottage cheese ball in mouth): See if you can guess what I am, now?

(Punches cheeks, spits out cottage cheese): I’m a zit . . Get it?!

Bluto : “ FOOD FIGHT !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!”

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com Enter the Regulatory Agency in Charge

• On December 17, 2007 , the New Jersey Council on Affordable Housing (COAH) voted to propose its revised third round regulations in response to the decision of the Superior Court, Appellate Division, in the matter of In Re: Adoption of N.J.A .C. 5:94 & 5:95, by New Jersey Council on Affordable Housing, supra . The rules were published in the January 22, 2008, New Jersey Register.

• After conducting five separate public hearings, receiving more than 4,800 comments from more than 600 individuals and organizations, on May 6, 2008 , COAH voted to adopt the new, revised third round affordable housing regulations (“Third Round Rules”). The Third Round Rules were published in the New Jersey Register and thus became effective on June 2, 2008, at N.J.A.C . 5:96 & 5:97. The revised regulations were designed to meet the Appellate Division’s requirements, and continued the “growth share” approach wherein municipalities provide affordable housing need measured as a percentage of, and in proportion to, market-rate residential and non-residential growth in their communities from 2004-2018.

• The revised Third Round Rules further continued, in pertinent part, the use by municipalities of “Regional Contribution Agreements” (RCAs) as a method to address affordable housing needs under the New Jersey “Fair Housing Act,” P.L. 1985, c.222 (C.52:27D-301, et al.)(FHA), which device had been historically used to facilitate a municipality’s transfer of up to 50 percent of their affordable housing obligations to other municipalities by making a financial contribution to the receiving municipality. However, the revised regulations increased the per unit rate for RCA transfers from $35,000 per unit to between $67,000 and $80,000 per unit (by COAH region).

[Flounder at Delta House pledge party – walks in on upperclassmen ]

Flounder : You guys playing cards?

• Simultaneously, at its meeting of May 6, 2008 , COAH also proposed further amendments to the very same new Third Round Rules it voted to adopt that same day ( N.J.A.C. 5:96 and N.J.A.C . 5:97), as well as to the procedural rules for municipalities certified by COAH prior to the Appellate Division’s decision of January 25, 2007. The proposed rule amendments were published in the New Jersey Register on June 16, 2008 , comments were invited and received by August 15, 2008, and COAH voted to adopt the amendments on September 22, 2008 . The amendments, in pertinent part, established a new deadline of December 31, 2008, for all municipalities to submit revised third round affordable housing plans to COAH and inclusion of transitional procedures for municipalities with third round substantive certifications granted before the Appellate Division’s decision of January 25, 2007. Enter the Legislative & Executive Branches – Not to Be Outdone or Upstaged

[Classroom scene in the English Literature Class, on Milton’s “Lost Paradise.” None of his literature students are paying attention ]

Professor Jennings (Donald Sutherland ): Don’t write this down, but I find Milton probably as boring as you find Milton. Winded, he doesn’t translate very well into our generation, and his jokes are terrible.

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com [Bell rings, students rise to leave ]

Jennings : But that doesn’t relieve you of your responsibility for this material. Now, I’m not joking! This is my job.

• Separate and apart from COAH’s promulgation of its revised Third Round Rules with effective date of June 2, 2008, and while COAH’s further amendments thereto had been proposed on May 6, 2008 and published on June 16, 2008 (abiding COAH’s formal vote to adopt those amendments, which came later on September 22, 2008), on July 17, 2008 , Governor Corzine enacted into law new COAH-reform legislation, P.L. 2008, c. 46 (the New Act), that took the form of Assembly Bill 500/Senate Bill 1783 – more commonly known and referred to as the “Roberts’ Bill” -- that had been passed by the State Assembly on June 16, 2008, and State Senate on June 23, 2008. In substantial part, the New Act amended, inter alia , the New Jersey “Fair Housing Act,” P.L. 1985, c. 222 (C.52:27D-301, et al.)(FHA). Included in the New Act was a new section that has been added to the FHA known and entitled as the “State-wide Non- Residential Development Fee Act.” The New Act took effect immediately upon its enactment by Governor Corzine on July 17, 2008.

[Dean Wormer’s Office – Delta House members called in by the Dean ]

Dean Wormer : Where are the other two - Stratton and Schoenstein?

Hoover : We can't find them, sir. We looked everywhere, but-

Dean Wormer : Never mind. Did you boys see your grade point averages yet?

Hoover : They're not posted yet, sir.

Dean Wormer : I've seen them. Mr. Kroger, two C's, two D's and an F - that's a 1.2 grade average. Congratulations, Kroger, you're at the top of the Delta pledge class.

[Bluto gives Kroger a congratulatory nudge ]

Dean Wormer : Mr. Dorfman.

Flounder : Hellooooo.

Dean Wormer : 0.2. Fat, drunk and stupid is no way to go through life, son. Mr. Hoover, president of Delta House - 1.6. Four C's and an F. A fine example you set. Daniel Simpson Day has no grade point average. All courses incomplete. Mr. Blu- [ looks up to see that Bluto has stuck pencils up his nose ] Mr. Blutarsky. Zero POINT zero. Now I want you to tell Mr. Stratton and Mr. Schoenstein exactly what I'm about to tell you right now.

Hoover : And what's that, sir?

Dean Wormer : You're out! Finished at Faber! Expelled! I want you off this campus at 9:00 Monday morning! And I'm sure you'll be happy to know that I have notified your local draft boards and told them that you are now all, ALL eligible for military service.

[Flounder's mouth flutters ]

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com Dean Wormer : Well? [Flounder opens his mouth a bit] WELL? [ Flounder opens his mouth some more ] OUT WITH IT! [ Flounder vomits on Dean Wormer ]

• Pursuant to the New Act, the Legislature invalidated and eliminated the use by municipalities of “Regional Contribution Agreements” (RCAs) as a method to address affordable housing needs under the FHA, which device, as noted, had been historically used to facilitate a municipality’s transfer of up to 50% of their affordable housing obligations to other municipalities by making a financial contribution to the receiving municipality.

• Notwithstanding the New Act’s proscription against the use of RCAs by a municipality, it permits those agreements entered into prior to the effective date of the New Act to be carried out; and, so long as the Council on Affordable Housing (COAH) had formally approved, by resolution duly adopted by COAH, such RCAs prior to the effective date of the New Act.

• In lieu of hence invalidated RCA’s, the State-wide Non-Residential Development Fee Act now requires that commercial developments be assessed a surcharge representing 2.5 percent of the equalized assessed valuation of a “non-residential,” non-exempt development project, which fee would be required to be collected by the municipality from the developer prior to the issuance of a certificate of occupancy and deposited in the municipality’s COAH-approved “Mt. Laurel affordable housing trust fund”; and, in the absence of one, delivered to the State Treasurer for deposit in an as-yet- to-be-created Affordable Housing Fund to be administered and overseen by an as- yet-created new layer of bureaucracy, the so-styled “State Housing Commission.”

D-Day : We have an old saying in Delta House; don’t get mad, get even!!!!!

• Mincing no words about it, the very adoption by COAH of its new Third Round Rules prompted the president of one prominent New Jersey builder-developer to e- mail his chairman of the board, “Commercial real estate in New Jersey, as this state has known it for the last 30 years, has ceased to exist”; and, one similarly prominent state legislator to characterize the new COAH regulations as “insane and bizarre” with the anticipated result that “. . . no affordable housing will be built, no regular housing will be built . . . or any commercial development will be built . . . It will stop development in its tracks.” 2

• Similarly, and without limitation, the very enactment of the Roberts’ Bill by the Governor provoked an observation that “[i]t’s despicable legislation” by a mayor of one substantial central New Jersey municipality, and comments from a prominent specialist in the field who serves as special affordable housing counsel to the same town and a multitude of others such as, “This is a colossally foolish piece of legislation of epic proportions” 3 ; who also challenged “. . the governor to take a look at this legislation and to really analyze the economics before he signs it “ and because, in his view “ . . . this will be an economic disaster for this state,” further admonishing that

2 “Developers balking at fee increase,” by Ian T. Shearn, as it appeared in The Sunday Star Ledger – Business Sunday section, May 11, 2008 edition. 3 “New COAH rules might mean tax increases in Wall,” by Charles Webster IV, as it appeared in the Asbury Park Press, August 1, 2008 edition.

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com “These are all ticking time bombs . . .,” COAH as a “sinking ship,” and the “[w]e all need to wake up now before it’s too later . . . . before the Titanic sails.” 4

[Delta House scene, after Dean Wormer announces their expulsion ]

D-Day : War’s over, man. Wormer dropped the big one.

Bluto : Over? Did you say “over”? Nothing’s over until we decide it is!! Was it over when the Germans bombed Pearl Harbor? Hell, no!

Otter : Germans?

Boon : Forget it, he’s rolling.

Bluto : And it ain’t over now. ‘Cause when the goin’ gets tough… [ thinks hard }

Bluto : …the tough get goin’!!! Who’s with me? Let’s GOOOO!!!!!!!!!!

[runs out alone, then returns ]

Bluto : What the _____ happened to the Delta I used to know? Where’s the spirit? Where’s the guts, huh? This could be the greatest night of our lives, but you’re gonna’ let it be the worst. ‘”Ooh, we’re afraid to go with you Bluto, we might get in trouble”! Well, kiss my ass from now on. Not me! I’m not gonna’ take this. Wormer, he’s a dead man. Marmalard, dead! Niedermeyer ......

Otter : Dead! Bluto’s right. Psychotic, but absolutely right. We gotta’ take these bastards. Now we could do it with conventional weapons but could take years and cost millions of lives. No, I think we have to go all out ......

Bluto : We’re just the guys to do it.

D-Day : Let’s do it.

Bluto : Let’s, DO ITTT!!!!!!!!!!!

Re-Enter the Judiciary • On August 29, 2008, in consolidated appeals decided in Tomu Development Co., Inc. v. Borough of Carlstadt, et als./Tomu Development Co., Inc. v. Borough of East Rutherford , et als ., Superior Court of New Jersey, Appellate Division, Dkt. Nos. A-5512-05T1 and A-5621- 05T1 (Submitted April 9, 2008; Decided August 29, 2008), the Appellate Division affirmed the trial court decisions of the Hon. Jonathan N. Harris, J.S.C. below in Tomu Development Co., Inc. v. Borough of Carlstadt, et als./Tomu Development Co., Inc. v. Borough of East Rutherford, et als ., Superior Court of New Jersey, Law Division, Bergen County. Dkt. Nos. BER-L-5894-03 and BER-L-5895-03, Slip Opinion dated November 10, 2005. There, Judge Harris determined that the municipalities of Carlstadt and East Rutherford – both within the jurisdiction of the New Jersey Meadowlands Commission (NJMD) – and in collaboration with the NJMD, had engaged in

4 “Middletown mulls joining COAH lawsuit ”, by Jamie Romm, as it appeared in The Independent, August 15, 2008 edition. But see Governor Corzineʼs most recent “retreat” on the matter, reported infra .

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com exclusionary zoning, granted the plaintiff developer a “builder’s remedy” to build 840 housing units (700 market-rate, 140 affordables), together with commercial and recreational facilities.

The unique feature of Judge Harris’ decision was that, for the first time ever, a trial court created as an adjunct to its award of a “builder’s remedy” an additional, new tool to ensure compliance by the defendant towns. The court suspended all zoning ordinances in both Carlstadt and East Rutherford pending their compliance with the remedy. A new, independent “Mt. Laurel Implementation Monitor” was appointed by the court to perform pertinent zoning functions of the towns such as making land use development decisions for them, preparing housing elements and fair share plans and appearing before the NJMC on affordable housing applications. On appeal, the towns challenged the lower court’s creation and imposition of the “Mt. Laurel Implementation Monitor.” Rejecting the challenge in this regard but, instead, lauding the lower court’s innovation, the Appellate Division notably remarked:

We are also satisfied there is ample basis in the record and in the spirit and law of Mount Laurel to support Judge Harris’ novel step of appointing a neutral ‘Mount Laurel Implementation Monitor’ to formulate the land use development decisions for the two municipalities, including preparing a fair share plan and appearing before the Meadowlands Commission on Tomu’s zoning applications for this parcel.

The appointment of the Implementation Monitor, with defined powers, is an inspired and appropriate exercise of the court’s judicial powers , consistent with the Mount Laurel decisions, to assume oversight responsibility for the constitutional right to have zoning throughout New Jersey appropriately accommodate affordable housing where, as here, the municipalities neglected such constitutional obligations. Judge Harris’ ruling was creative and insightful . It was definitely not punitive. Rather than hold the municipal officials in contempt, which would have been a knee- jerk reaction, the judge wisely looked for a remedy that would move this case forward. The ruling was intended to avoid collaboration between the municipalities and Meadowlands Commission that would continue the pattern of non-compliance. 5 [Emphasis added] Re-Enter the Executive Branch Otter : You guys up for a toga party?

Bluto : TOGA!! TOGA!! TOGA!! . . . .

[All Delta House members join, chanting ‘TOE-GA, TOE-GA, TOE-GA !!!!]!

Otter : Ah, I think they like the idea, Hoov.

• On September 5, 2008 , Governor Corzine approved the Highlands Regional Master Plan and issued now infamous “Executive Order 114” aimed at issues relating to the 88 northern New Jersey municipalities located in the Highlands region. EO 114

5 Slip Opinion , at pp. 17, 19-20.

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com directed that COAH’s calculations of affordable housing obligations of municipalities be adjusted downwards as necessary to ensure consistency with the Highlands Regional Master Plan. But the Highlands Region was, by statute, divided in to two distinct areas: the “Preservation Area,” and the “Planning Area.” The “Preservation Area” contains strict development criteria that effectively precludes new development. The “Planning Area” provides municipalities that fall within its boundaries to either “opt in,” or voluntarily submit to the Highlands Council’s strict development criteria, or, to “opt out” and thus control their own land use decision without restriction through municipal ordinance.

However, buried in the fine print of EO 114, is the proviso that for all intents and purposes forces municipalities in the “Planning Area” to “opt out” by directing the NJDEP to withhold permits or approvals for development unless that development conforms to the strict development criteria of the Highlands Regional Master Plan. 6 Re-Enter the Judiciary

• On October 7, 2008 , the Appellate Division denies an emergent application that sought to extend the deadline imposed by COAH for the filing of new affordable housing plans by municipalities.

[Dean Wormer’s plotting to get rid of Delta House ]

Omega’s Greg Marmalard : But Delta’s already on probation.

Dean Wormer : They are? Well, as of this moment they’re on DOUBLE SECRET PROBATION!!! Re-Enter the Regulatory Agencies

• On November 4, 2008 , the Highlands Council and COAH enter into a “Memorandum of Understanding” (MOU), which was earlier approved by COAH on October 30, 2008, to ostensibly implement the mandates contained in the Governor’s EO 114.

• Under the MOU, conforming Highlands Region municipalities would have their COAH Third Round affordable housing regulations adjusted to ensure that the Regions’ water and other resources are protected, and each conforming municipality’s obligation would be determined by a local build-out analysis to be performed in accordance with the Highland Regional Master Plan. Up to 50 percent of a municipality’s affordable housing obligation could be shared with other willing municipalities in the Highlands Region in order to conserve environmentally sensitive lands or to take advantage of transportation hubs or existing infrastructure.

• What’s missed, among other things, in the public reporting of the MOU is that, by its very terms, either COAH or the Highlands Council could terminate the MOU on 60 days’ notice to the other. Nothing in the MOU provides for what terms, conditions or events, even standards, apply as would warrant or govern such a termination – nor, in that event, what the consequences would be and/or which branch of government

6 See “New COAH Regulations, Court Decisions, Legislation and Highlands Executive Order Create New Affordable Housing Standards in New Jersey”, by Henry T. Chou, Esq., as reported online on October 14, 2008 at www.hillwallack.com , “News & Publications” .

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com would assume regulatory power and control over the defaulting or terminating party (presumably, the Executive branch). More inchoate paralysis.

• Above all, whether the Governor can, through executive fiat, unilaterally alter (or subvert) the constitutional requirements of Mount Laurel , and, outright ignore the distinctions drawn by the Legislature by its creation in the Highlands Act of the separate and distinct “Preservation Area” and “Planning Area” in the Highlands Region, can only be resolved through even further litigation. It gets worse.

[The New Pledges – Omega House ]

New Omega Pledge Chip (Kevin Bacon) : Thank you, sir, may I have another?

• On November 12, 2008 , in a one-two punch, COAH, arguably without having provided proper legal notice nor complying with its own rules and procedures, issues its “scarce resource restraint” order on all Highlands towns under its control – 72 of the 88 towns in the Highlands Region, including 24 of Morris County’s 32 municipalities – that effectively stops all construction that does not include affordable units. The order was deemed to apply even to those towns in the Highlands Region “Planning Area,” where compliance with the Regional Master Plan is voluntary. Two distinct, and contrary reactions reported in the immediate aftermath of COAH’s “scarce resources restraint” order followed, and typified the escalating tri-angulation of government:

• Noted the head of the New Jersey chapter of the activist, environmentalist group, The Sierra Club: “It’s like a de facto building moratorium . . . . . [i]t’s an important step forward.” 7

• One highly respected, prominent land use lawyer with particular expertise in Highlands Region planning issues, aptly commented as follows. After observing that COAH had in the past imposed such restraints on individual towns, she noted that the council did so only after providing notice to the towns, giving them a chance to respond and hold a public hearing. Noting that wasn’t the case with this order, she added: “This was a very irregular way to proceed . . . . I have a bunch of hearings scheduled in the next few weeks, and I’m not sure if the planning boards are going to let them go forward . . . We might be talking about a couple of years of delays if the courts don’t step in and say this was not required, this was not justified.” The clear sentiment was that COAH was effectively shutting down the planning and zoning boards of the 72 affected Highlands Region towns for the next 4-5 years. Similarly, “ I’m not clear on what the emergency is that suggested that the council should bypass the requirements of its own rules and basic due process.” 9

Judicial Process Re-Engaged [The Student Court trial scene of Delta House ]

Otter : Point of parliamentary procedure!

7 “Builders in Highlands must add affordable units ,” by Colleen OʼDea, as reported online in the November 13, 2008 edition of DailyRecord.com. 8 “State approves affordable housing rules for 72 Highlands towns ,” by Paula Saha, as reported in the November 13, 2008 edition of The Star-Ledger. 9 Op., cit .

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com Hoover : Don't screw around, they're serious this time!

Otter : Take it easy, I'm pre-law.

Boon : I thought you were pre-med.

Otter : What's the difference?

Otter : Ladies and gentlemen, I'll be brief. The issue here is not whether we broke a few rules, or took a few liberties with our female party guests - we did. [winks at Dean Wormer] But you can't hold a whole fraternity responsible for the behavior of a few, sick twisted individuals. For if you do, then shouldn't we blame the whole fraternity system? And if the whole fraternity system is guilty, then isn't this an indictment of our educational institutions in general? I put it to you, Greg - isn't this an indictment of our entire American society? Well, you can do whatever you want to us, but I for one am not going to stand here and listen to you badmouth the United States of America. Gentlemen!

[Leads the Deltas out of the hearing, all humming the Star-Spangled Banner ]

Greg : Order!

Dean Wormer: You've done it this time buster! No more Delta! I'm calling the national office! I'm going to revoke your charter! And if you wise-guys do one more thing, one more, I'm going to kick you out of college! No more fun of any kind!

• By the fall of 2008, roughly one-third to one-half of New Jersey’s 566 municipalities initiated and/or joined in litigation challenges and appeals lead by/through the New Jersey League of Municipalities, in addition to those filed by numerous parties, individuals and entities both in the Superior Court of New Jersey seeking to challenge, overturn and/or appeal the legality of the New Act (in whole or in part), as well as the revised third round affordable housing regulations adopted by COAH on May 6, 2008 (effective June 2, 2008), as amended on September 22, 2008, with effective date pending publication, comment and promulgation and made in response to the decision of the Superior Court, Appellate Division, in the matter of In Re: Adoption of N.J.A.C. 5:94 & 5:95, by New Jersey Council on Affordable Housing , 390 N.J.Super . 1 (App. Div.), certif. denied , 192 N.J. 72 (2007).

See N.J.A.C. 5:96, 5:97 (effective June 2, 2008), appeals pending, IMO The Revised Third Round Regulations Promulgated by the NJ Council on Affordable Housing, N.J.A.C . 5:96 and 5:97 , A-5382-07T3, A-5404-07T3, A5423-07T3, A5424-07T3, A-5429-07T3, A-5436- 07T3, A-5451-07T3, A-5455-07T3, A-5458-07T3, A-5460-07T3, A-5461-07T3, A-6690- 07T3, A-5752-07T3, A-5756-07T3, A-5757-07T3, A-5758-07T3, A-5759-07T3, A-5760- 07T3, A-5761-07T3, A-5763-07T3, A-5765-07T3, A-5767-07T3, A-5871-07T3 and A- 5920-07T3.

• Bernards Township in Somerset County and Clinton Township in Hunterdon County were among 20 municipalities in the Hunterdon, Somerset and Warren County vicinages that banded together in one such action that was filed seeking to challenge the new regulations and separate and apart from that filed by the League of Municipalities. In the October 28 regular meeting of its governing body, Bernards’ Mayor, John Carpenter, alluded to the Township’s effort with Clinton, described its

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com joining the lawsuit against COAH protesting the basis on which the latest numbers for required affordable housing units were calculated for New Jersey towns, and further reported that there were a number of other lawsuits challenging the latest COAH regulations, including the one launched by the League of Municipalities. Even Mayor Carpenter picked up on the Animal House analogy, when he reportedly remarked: “It’s quite a food fight.” 10

• Despite intervening efforts on multiple judicial and administrative fronts, an application made by the New Jersey League of Municipalities to stay the December 31, 2008 deadline pending appeals was denied by the Superior Court, Appellate Division, on October 6, 2008. Further applications later made to COAH for a stay were similarly denied by the December 31, 2008, deadline imposed for plan filings.

[The Faber Day Parade Lead-Up – Sun-glassed Flounder to Store Clerk ]

Flounder : “May I have 10,000 marbles, please?!”

[The Faber Day Parade scene ]

Flounder : “Oh, boy, this is great!!!”

• By December 31, 2008 , 234 of the 302 eligible municipalities in New Jersey (i.e., those not already in COAH compliance and/or under court jurisdiction and/or certain Highlands Region municipalities exempted under special extensions granted) filed new housing elements and fair share plans with COAH. That would leave some 68 municipalities who were eligible that did not file plans by the deadline – less those Highlands municipalities previously under COAH’s jurisdiction -- who, as a consequence, now remain exposed to builder’s remedy suits. Upwards of 271 or more of the state’s 566 municipalities are in litigation with COAH, et al. An Executive Branch Retreat? • Evidencing the volatility, rapidity and almost daily fluctuation of position changes on the issues, and literally at press time for this article, in his annual “State of the State” address delivered on January 13, 2009 to a Joint Session of the Legislature, Governor Corzine called for a one-year “moratorium” on COAH’s enforcement of the 2.5 percent developer’s fee for “non-residential” construction, and called for an exemption for projects that were in the pipeline before the fee was instituted. This is the very same component of the COAH-reform legislation that was rammed through the Legislature and enacted into law – effective immediately – by the Governor back on July 17, 2008, and known formally as the “State-wide Non-Residential Development Fee Act.” Here Comes Local Government, Again [The Deathmobile Heads for the VIP Grandstand at the Faber Day Parade ]

D-Day : “Ramming speed!!!!!”

• No details were given or released as to whether the Governor’s newly proposed “moratorium” would be imposed – and, if so, how and by whom, the Legislature or the Executive branch? What appears to remain is a municipality’s “growth share” obligation under the new Third Round Rules, and reactions to the “moratorium” idea

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com issuing from the local government sector were immediate, and perhaps summed up best as follows: “Foremost on many mayors’ list of gripes was Corzine’s proposal to impose a one-year moratorium on developers’ fees that help pay for building affordable housing…Mahwah Councilwoman H. Lisa DiGiulio and Bridgewater Mayor Patricia Flannery said the moratorium should extend to construction because without collecting the developers’ fees, the taxpayers would have to foot the bill.” [Emphasis supplied] 11 The Epilogue? So, where does this all bring us? What IS the “Epilogue”? We all found out at the end of Animal House that Bluto got married to Mandy Pepperidge (Greg Marmalard’s squeeze) and became a U.S. Senator; Otter went on to become a gynecologist in Beverly Hills; Boon became a cab driver in New York City and a part-time writer; Hoover became a public defender in Baltimore; D-Day, well, his whereabouts went unknown; Pinto became the editor of National Lampoon magazine; Flounder became a sensitivity trainer in Cleveland; Marmalard became a Nixon White House and was subsequently raped in prison; and Niedermeyer, the Omega House ROTC, was killed by his own troops in Vietnam! But how does it all end for industry sectors and players involved in the home-building and affordable housing arena here in New Jersey? Unfortunately, the end of this saga is far from sight. What is certain is the uncertainty of it all. What is reliable is the virtual unreliability of it all. Some analysts predict that we haven’t seen the bottom of the market yet, which most likely will bottom out in third quarter of 2009 and then a slow return going into 2010. Now that the election of 2008 is over and the inauguration of our new President has taken place, and while all sorts of mega-stimulus packages and public works infrastructure programs are being developed, no one really knows what the Obama Administration will actually do that may help to accelerate the economic and homebuilding recovery, but nothing will happen anytime soon. And then there’s this other seeming clash of market forces emerging. On the one hand, existing home sales appear to be undermining the new home market as sellers have more latitude to drop pricing to dispose of homes. Builders don’t have the same luxury or flexibility. In addition, lenders taking back, or stuck with, foreclosed properties and accumulating housing inventory (much like builders) have no choice but to sharply discount homes and take write downs, and such a circumstance will clearly continue to adversely impact the new home market. On the other hand, according to some, the housing product most conducive for the construction of affordable housing, i.e ., multi-family attached developments, seems to be moving into the front- runner position of choice in the market and primarily due to affordability. If true and especially for the prospect of affordable housing coming on-line, it’s a “Catch-22.” Rubbing up against that prospect are counter-veiling phenomena, such as: reliability and integrity of appraisals; excessive credit card debt of individuals impacting buyer-borrower debt ratios; all coupled with new mortgage lending criteria and requirements for greater deposit money and higher credit scores. Not to mention continued employment layoffs occurring regularly, and nation-wide, having a virtual strangle-hold on buyer confidence. Even if lenders freed up and advanced credit for mortgage loans, the field of qualified or qualifiable borrowers is being severely narrowed, which begets the need for government subsidy (hence, economic stimulus and bail-out programming). It’s a vicious cycle, and that’s before one factors into the analysis the level of strangulating regulation and restriction activity that is now extant in New Jersey.

11 “Corzine warns mayors to anticipate cuts in aid – Officials balk at plans for affordable housing and pensions”, by Maryann Spoto, Staff Writer, as reported in the January 15, 2009 edition of The Star-Ledger -- New Jersey/Somerset & Hunterdon section.

California Delaware Florida Nevada New Jersey New York Pennsylvania www.foxrothschild.com The challenge for land use practitioners and their planning/engineering consultants going forward is how to best distill advice and counseling for aspiring residential and non-residential developers in the face of constantly moving targets. At the current pace of this “food fight,” what is law today and mandates compliance could literally change overnight by either judicial order or decision, overriding reform legislation, overriding, countermanding and/or circumventing executive order, regulatory fiat from COAH, the Highlands Council, DCA, DEP or even the new State Housing Commission (if and when ever empanelled) – or any combination of each. It’s hard to get a straight answer from the government and its agencies as to what applies and what doesn’t. Consequently, it’s even more of an imperative for developers, builders and property owners who may have a desire to build in the future to consult experienced zoning and land use counsel familiar with the intricacies and nuances to help navigate them through this regulatory quagmire. It’s a scary time. 12 Regrettably, the recent flurry of conflicting executive and administrative regulatory activity has already caused highly desired businesses to flee, either consciously or subconsciously, out of pure fear of the unknown and unpredictable. Builders and developers have a confidence problem and are facing an identity crisis. What needs to be counseled is restraint and caution. 13 Our three branches of government have to calm down, engage the economic realities of the day and realize that even before the national and global melt-down of this past six months, what has occurred judicially, legislatively and administratively through regulation could very well paralyze, if not cause the death of one of New Jersey’s key economic engines – the development, building and construction industry. This especially holds true for the effort to comply with laudable goals of the Mount Laurel doctrine and thus provide “a realistic opportunity for a variety and choice of housing” for those in need and those who might still be able to afford a new home (or get a bank willing to make loan to permit them to buy one!). Perhaps, then, all three branches of our state government should heed that other rallying cry from Animal House and as a prelude to any further regulatory activity. When informed in person by Dean Wormer at Delta House of their collective expulsion from Faber, there were Boon, Otter, Flounder and Bluto all pouting on the couch, until: Boon : Christ, Otter, this is ridiculous ...... What are we gonna’ do???!!!!

[Otter pauses, looks down, then looks back up at Boon and Flounder ]

Otter, with Bluto :“ROAD TRIP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ”

For more information about this topic, contact Tom McCloskey at 609.896.4578 or [email protected].

12 If you think the affordable housing vice is problematic, you should study and drill-down into the particulars of the Governorʼs new Energy Master Plan and what it portends for an impending real estate “ Armageddon ” here in New Jersey. See Fox Rothschild “ALERT” from the Co-Chair of its Energy and Public Utilities Practice Group, Steven S. Goldenberg, Esq., at www.foxrothschild.com . Click to “Practice Groups,” then “Energy & Public Utilities” and then to “Newsletter.”

13 Indeed, one well–known “ Saturday Night Live ” writer, ensemble cast member, actor/comedian-turned Democratic politician just won a hotly contested battle against the Republican incumbent and will be seated as the next junior United States Senator from Minnesota, namely, Al Franken. With all this dizzying regulatory activity, maybe Al should reprise his SNL sketch role as the sensitivity trainer, “Stuart Smalley,” come to New Jersey and have a serious group sit-down session with our government officials. They could all benefit from a reality check, after sprinkling in some good old-fashioned self- esteem and confidence boosting therapy for members of the building and development community .

© 2009 Fox Rothschild LLP. All rights reserved. This publication is intended for general information purposes only. It does not constitute legal advice. The reader should consult with knowledgeable legal counsel to determine how applicable laws apply to specific facts and situations. This publication is based on the most current information at the time it was written. Since it is possible that the laws or other circumstances may have changed since publication, please call us to discuss any action you may be considering as a result of reading this publication.

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