IN RE GRANT OF SUBSTANTIVE CERTIFICATION TO READINGTON TOWNSHIP, HUNTERDON COUNTY BY THE NEW JERSEY COUNCIL ON AFFORDABLE HOUSING

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1046-09T2

IN RE GRANT OF SUBSTANTIVE

CERTIFICATION TO READINGTON

TOWNSHIP, HUNTERDON COUNTY

BY THE NEW JERSEY COUNCIL

ON AFFORDABLE HOUSING.

March 14, 2012

 

Argued March 23, 2011 - Decided

Before Judges Fuentes, Ashrafi and Newman.

On appeal from the New Jersey Council on

Affordable Housing.

Robert Kasuba argued the cause for appellant

Valley National Bank (Sills Cummis & Gross

P.C., attorneys; Mr. Kasuba, of counsel and on

the briefs).

 

Valerie Jean Kimson argued the cause for respondent

Readington Township (Mason Griffin & Pierson,

attorneys; Ms. Kimson, on the brief).

 

Geraldine Callahan, Deputy Attorney General,

argued the cause for respondent Council on

Affordable Housing (Paula T. Dow, Attorney General,

attorney; Melissa H. Raksa, Assistant Attorney

General, of counsel; Ms. Callahan, on the brief).

 

PER CURIAM

In this appeal, Valley National Bank (VNB), seeks the reversal of an October 14, 2009, decision by the Council on Affordable Housing (COAH), granting Readington Township's petition for substantive certification based, in part, on the regulations we thereafter invalidated in In re Adoption of N.J.A.C. 5:96 & 5:97 by the New Jersey Council on Affordable Housing, 416 N.J. Super. 462, 471 (App. Div. 2010), certif. granted, 205 N.J. 317 (2011).1 These regulations, adopted by COAH under the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329.19, sought to establish "the obligations of municipalities to provide affordable housing during the 'third round' period from 1999 to 2018 and provide mechanisms for municipalities to achieve compliance with those obligations." Ibid.

We must therefore determine what effect our decision in In re Adoption of N.J.A.C. 5:96 & 5:97 has on the substantive certification challenged by VNB. Because Readington has taken substantial and concrete steps to implement the plan approved by COAH on October 14, 2009, immediate invalidation of Readington's substantive certification is not warranted. We remand the matter to COAH for reevaluation of Readington's fair share obligation following its adoption of the re-amended third round rules pursuant to In re Adoption of N.J.A.C. 5:96 & 5:97.

 

 

 

I

Judicial Oversight

In order to make the particular facts that led to this appeal meaningful, we must first provide a brief description of the legal environment that governs judicial oversight of these kinds of planning decisions by municipalities throughout our State.

Following our Supreme Court's landmark decisions in the Mount Laurel cases2, the Legislature enacted the FHA and the State Planning Act, N.J.S.A. 52:18A-196 to -207. In re Adoption of N.J.A.C. 5:94 & 5:95 by the N.J. Council on Affordable Hous., 390 N.J. Super. 1, 21 (App. Div.), certif. denied, 192 N.J. 72 (2007). The FHA in turn created COAH as a means of providing "an administrative mechanism for implementing the Mount Laurel doctrine." Ibid. COAH was thus directed

to divide the State into housing regions, estimate the present and prospective need for low- and moderate-income housing at both the State and regional levels, and adopt criteria and guidelines that would enable a municipality to determine its fair share of its region's present and prospective housing need.

 

[Ibid.]

 

Under the FHA's mandate, COAH's responsibilities include "adjust[ing] municipal fair share based on available vacant and developable land, infrastructure considerations or other environmental factors, and [seeing] that the pattern of development is not inconsistent with the planning designations in the State Plan." Ibid. To accomplish these goals, "[t]he State Planning Commission must provide COAH with annual economic growth and development projections for each housing region, and COAH must periodically adjust regional need calculations based upon the amount of affordable housing generated through any federal, state, municipal or private housing program." Id. at 21-22.

COAH uses this data, along with "pertinent information from studies, government reports, and information from other branches of government," id. at 22, to adopt substantive and procedural rules governing the calculation of municipalities' fair share obligations and the implementation of plans to accomplish the goals of the Mount Laurel doctrine, as well as to periodically update these rules in accordance with shifts in land availability and regional housing needs. These rules are used by COAH to analyze individual municipal plans setting forth the means by which they propose to fulfill a municipality's fair share obligations; when COAH is satisfied that the plans present a "realistic opportunity" for meeting affordable housing obligations, it may then grant substantive certification to the municipality. In re Adoption of N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. at 471-72. A grant of certification means that a municipality "is insulated to a substantial extent from exclusionary zoning litigation for a period of . . . ten years." Id. at 472.

The first round of substantive rules adopted by COAH, N.J.A.C. 5:92-1.1 to -18.20, covered the period from 1987 to 1993; the second round of rules, N.J.A.C. 5:93-1.1 to -15.1, covered the period from 1987 to 1999; these rules were received by the regulated community largely without successful legal challenge. In re Adoption of N.J.A.C. 5:94 & 5:95, supra, 390 N.J. Super. at 24-27. Both the first and second round rules utilized essentially the same methodology for allocating fair share obligations amongst municipalities. Id. at 25. A number of "surrogates" were employed to establish the present need of a given "regional growth area," including overcrowding, the age of housing units, and "lack of plumbing, kitchen or heating facilities as indicators of dilapidated housing." Id. at 23.

Future need was calculated using "statistical analyses to project the number of low- and moderate-income households that would form" during the coverage period of the rules. Ibid. The total calculated need was subsequently reduced based on a number of factors, such as "filtering,"3 "residential conversion,"4 and "spontaneous rehabilitation."5 Id. at 24. This resulting need was then allocated to municipalities "based on employment within the municipality, projected employment within the municipality, the percentage of the municipality in a growth area, and the municipality's wealth." Id. at 23-24.

In contrast to the relatively conflict-free history of the first and second round rules, COAH has faced significant legal challenges to its third round substantive rules, N.J.A.C. 5:94-1.1 to -9.2, covering the period from 1987 to 2014. These challenges have largely focused on methodological changes made to: (1) the calculation of overall regional need; and (2) the allocation of this need amongst municipalities. We first addressed these challenges in In re Adoption of N.J.A.C. 5:94 & 5:95, supra, 390 N.J. Super. 1, a case that had a particular focus on the then newly implemented "growth share" methodology for allocating affordable housing need to municipalities.

The third round rules included three major components for determining a municipality's fair share requirement:

(1) a municipality's 'rehabilitation share'6 based on the condition of housing revealed in the data gathered for the 2000 Census . . . ; (2) a municipality's unsatisfied prior round obligation (1987 through 1999) . . . ; and (3) a municipality's 'growth share' based on housing need generated by statewide job growth and residential growth from 1999 through 2014.

 

[Id. at 27.]

 

We summarized the "growth share" calculation as follows:

To meet the prospective need as defined by COAH, each municipality must provide for the development of one affordable housing unit for every eight new market-rate residential units projected, plus one affordable unit for every twenty-five newly created jobs. Municipalities will not calculate each new or additional job created in the municipality. Rather, COAH has determined that various categories of new construction will create varying numbers of jobs, depending upon the category, or "use group," of the construction. For example, an office building will generate three jobs per 1000 square feet, whereas a strip mall will generate one job per 1000 square feet. However, municipalities will not be responsible for the new jobs created by, for example, rehabilitating an existing vacant office, store or factory.

 

[Id. at 29-30 (citations omitted).]

 

We noted that, "[i]n the first and second rounds, COAH assigned a specific fair share number to every municipality." Id. at 48. However, under the third round methodology, municipalities "can decide for themselves how much affordable housing they want in the future," because a municipality's growth share projection, based on anticipated construction and job creation, is only converted to an "actual growth share obligation" following the "issuance of permanent certificates of occupancy." Id. at 48, 50. "Because a municipality's actual growth share obligation is directly linked to the number of housing units that are built in a municipality and the number of jobs generated by non-residential development, each municipality controls its destiny." Ibid.

Such an approach "is inconsistent with both the Mount Laurel doctrine as articulated by the Supreme Court and as codified in the FHA." Id. at 53. While "[m]unicipalities need not guarantee that the required amount of affordable housing will be built," they are still required to "adopt land use ordinances that create a realistic opportunity to meet the regional need and their own rehabilitation share." Id. at 54. We found, however, that the growth share methodology, as implemented, "encourages municipalities to adopt master plans and zoning ordinances that retard growth, in order to minimize the municipality's fair share allocation." Id. at 55. As such, the growth share approach was violative of the Mount Laurel doctrine "to the extent that the methodology . . . permits voluntary compliance, and excludes job growth and housing growth resulting from rehabilitation and redevelopment." Id. at 86.

We ordered COAH to amend its third round rules to reflect the determinations it made in its decision regarding the methodology for calculating affordable housing need and allocating it amongst municipalities. See id. at 88. COAH adopted revised third round rules on June 2, 2008, and, following a substantial number of appeals challenging their validity, adopted amendments to the revised rules on October 20, 2008, which were ultimately codified at N.J.A.C. 5:96-1.1 to -20.4 and N.J.A.C. 5:97-1.1 to -10.5 and Appendices A through F.

In In re Adoption of N.J.A.C. 5:96 & 5:97, supra, this court addressed the revisions that COAH made to the growth share methodology in light of the holding in In re Adoption of N.J.A.C. 5:94 & 5:95 and initially noted that

[i]n the revised third round rules, COAH has made projections of the number of housing units that will be built, and the number of jobs that will result from new non-residential development, in each municipality between 1999 and 2018. See N.J.A.C. 5:97-2.2(d), -2.4(a), and App. F. Based upon these projected growth figures, COAH has assigned each municipality a housing obligation proportional to the projected growth within the municipality one unit of housing obligation for each five units of projected growth in the number of housing units and one unit of housing obligation for every sixteen jobs projected to be created. N.J.A.C. 5:97-2.2(d).

 

On an initial review, the modified version of the growth share methodology adopted in the third round rules may appear to have eliminated the power of municipalities to relieve themselves of the obligation of providing any significant amount of affordable housing by adopting land use regulations that discourage growth.

 

[416 N.J. Super. at 480.]

 

We cited several provisions that appear to support the validity of the revised growth share mechanism by adjusting for any difference between a municipality's projected growth share and actual growth share. Id. at 480-81. However, we held that:

Considered in isolation, these sections would seem to indicate that a municipality must provide a realistic opportunity for its full "projected growth share" of affordable housing even if its "actual growth share obligation," as determined by the actual increase in the numbers of residences and jobs in the municipality, is less than the projected growth share.

 

However, a review of other sections of the rules and COAH's statements of policy indicate that this is not COAH's intent, and that COAH plans to limit municipal obligations to satisfy the prospective need for affordable housing to the number of units determined by actual growth rather than COAH's projected growth calculations.

 

[Id. at 481.]

 

We then cited Appendix A to N.J.A.C. 5:97, which states, in part, that "municipalities incur obligations to provide affordable housing only when and to the extent growth occurs." Ibid. (emphasis omitted). This court further cited COAH's response to public comments regarding the revised third round rules, in which it stated:

The projection of growth share is to be used as a planning tool to establish reasonable targets. Municipalities will be required to zone or provide other mechanisms pursuant to N.J.A.C. 5:97-6 in keeping with their projections. The actual obligation will be determined based upon what actually occurs and adjustments will be made during biennial plan reviews.

 

[Id. at 482 (quoting 40 N.J.R. 5965(a), 5994 (Oct. 20, 2008)).]

 

Based on these findings, we again concluded that

the growth share methodology for determining a municipality's share of the prospective regional need for affordable housing set forth in the revised third round rules, like the growth share methodology set forth in the original third round rules, 'permit[s] municipalities with substantial amounts of vacant developable land and access to job opportunities in nearby municipalities to adopt master plans and zoning ordinances that allow for little growth, and thereby a small fair share obligation,' and is thus invalid for the reasons set forth in our prior opinion.

 

[Id. at 483 (alteration in original) (quoting In re Adoption of N.J.A.C. 5:94 & 5:95, supra, 390 N.J. Super. at 56).]

 

In the face of COAH's continued inability to adopt a constitutionally valid growth share methodology, and particularly mindful of COAH's failure to properly revise the structure following our initial ruling in In re Adoption of N.J.A.C. 5:94 & 5:95, we directed COAH "to adopt third round rules that incorporate a methodology similar to the methodology set forth in the first and second round rules, which were approved by the courts in most respects." Id. at 484.

II

Municipally Sponsored Affordable Housing

Our discussion now turns to the approach adopted here by Readington Township. In In re Adoption of N.J.A.C. 5:96 & 5:97 we specifically addressed the validity of N.J.A.C. 5:97-3.2(a)(4)(iv), which authorized substantive certification of compliance plans that rely upon municipally-sponsored 100% affordable housing projects "without any specifics or supporting documentation, such as the location of the project, evidence the municipality controls the site, suitability of the site, source of funds to construct and operate the project, or the identity of the entities that will construct and operate the project." Id. at 487.

N.J.A.C. 5:97-3.2(a)(4)(iv) states:

Documentation for all mechanisms not included in (a)4i through iii above shall be submitted according to an implementation schedule, but no later than two years prior to scheduled implementation of the mechanism, and shall consider the economic viability of the mechanisms and the actual growth share obligation that has or will occur as calculated pursuant to N.J.A.C. 5:97-2.5. Pursuant to N.J.A.C. 5:97-2.5(d), the municipality shall comply with the plan evaluation requirements and shall be subject to the enforcement remedies of N.J.A.C. 5:96-10.4.

 

In analyzing this provision, we noted that

COAH's sole justification for authorizing the grant of substantive certification based on such an amorphous plan for satisfaction of a municipality's affordable housing obligations is that "under [its] growth share [methodology], the obligation to construct does not arise unless and until the growth occurs," and therefore N.J.A.C. 5:97-3.2(a)(4)(iv) "was designed to address the limited area of 100% affordable housing programs, and the issue of the possible expenditure of municipal funds, by not requiring that a site be identified or a funding commitment be made if actual growth is not occurring."

 

[In re Adoption of N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. at 487-88 (alterations in original).]

We therefore concluded that because "COAH's justification for N.J.A.C. 5:97-3.2(a)(4)(iv) is wholly dependent upon the validity of the growth share methodology for determining prospective need," and because we had previously concluded that the growth share model as a whole was invalid, "N.J.A.C. 5:97-3.2(a)(4)(iv) is also invalid." Id. at 488. After addressing other unrelated challenges, we remanded the matter to COAH to promulgate amendments to the third round rules consistent with our decision. Id. at 511.

Because more than ten years had passed since the expiration of the second round rules, we "decline[d] to issue a blanket stay of proceedings before COAH or in the courts pending completion of the remand to COAH." Id. at 512.7 We nevertheless provided that "any municipality or other interested party may apply for a stay to COAH or the court in which a Mount Laurel case is pending," and further that "[a]ny such application should be decided in light of the status of the individual municipality's compliance with its affordable housing obligations and all other relevant circumstances." Ibid.

 

 

 

III

The Readington Petition

Readington applied to COAH for third round substantive certification by petition dated December 30, 2008, and accompanied by the Township's Housing Element and Fair Share Plan (HE/FSP). The Township had previously received first round certification on June 26, 1989, second round certification on May 7, 1997, and extended second round certification on May 11, 2005. Under the third round rules then in existence, COAH calculated Readington's fair share obligation to consist of a 394 unit prior round obligation and a 192 projected growth share obligation.8

Readington gave the following description of the "lands appropriate for affordable housing" within the Township:

Little of the remaining developable lands have public sewer or water allocation. Consistent with smart growth planning principles, the Township has chosen to concentrate the majority of the affordable housing in proximity to one of its primary transportation corridors, Route 22, and the Villages of Whitehouse and Whitehouse Station. These areas of the Township provide the greatest number of employment opportunities, services and access to mass transit, including the New Jersey Transit Raritan Valley line.

 

Several developers have offered to provide affordable housing on their properties. One such developer has a site located along the Route 22 Corridor. While the Township recognizes that additional sites in proximity to the Route 22 Corridor and the Villages of Whitehouse and Whitehouse Station may possess some characteristics which lend themselves to affordable housing, they are not needed to satisfy the Township's obligation at this time. The Township may consider these properties in the future for inclusionary housing or a 100% affordable housing project. The Township further recognizes that certain lands outside of these areas may also lend themselves to affordable housing; however, few areas of the Township can provide similar access to employment, services and transportation. Should it be necessary, the Township may consider lands outside of the Route 22 Corridor and the Villages of Whitehouse and Whitehouse Station in the future for a 100% affordable housing project(s).

 

Among the number of proposals submitted by Readington to meet its affordable housing obligations was a 100% municipally sponsored construction project:

Future Municipally-Sponsored Site(s)

 

The Township will construct 32 family rental units on a site(s) that will be identified in the future. These family rental units will not be needed in early years of the third round; as such the Township will identify site(s) within 2 years of beginning construction as identified on the implementation schedule. (N.J.A.C. 5:97-6.7(d)).

 

In addition, the Township will submit the required documentation, including but not limited to, documentation of site control, site suitability, a pro forma, and a construction schedule, for each site in accordance with its implementation schedule. This program will contribute one credit for each of the 32 rental units. The [32]9 units are eligible for rental bonuses. Additionally, 6 of the units will be reserved for very low income households.

 

According to Readington, this project provides 64 of the total credits required to fulfill its 192 unit fair share obligation (32 site credits plus 32 "rental bonus" credits). In summarizing its plan to address its third round obligations, Readington stated that, based on the information about all the development plans set forth in the HE/FSA, including the 32 Unit Project, the Township "has exceeded its 192 unit third round obligation by 11 credits."

By letter dated January 16, 2009, COAH acknowledged receipt of the Township's petition and HE/FSP. Notice of the Township's petition was published in local newspapers on January 27, 2009, initiating a 45-day comment period. On April 3, 2009, COAH informed the Township that it had received one timely objection to its petition from an entity unrelated to this appeal, and advised the Township that it was to submit a response thereto within twenty days, following which mediation would be scheduled.

COAH issued a Premediation Report requesting additional information from the Township on April 29, 2009. In this report, COAH addressed the 32 Unit Project as follows:

Pursuant to N.J.A.C. 5:97-6.7, Readington is proposing to construct 32 affordable family rental units in a future 100 percent affordable project. The Township is also proposing to deed restrict six of the units for very-low income households.

 

Readington will fund the project with its affordable housing trust fund. The Township has submitted a spending plan and a resolution of intent to bond in the event of a shortfall in funding that was adopted on November 24, 2008. The Township's spending plan allocates $4,668,896 for the project. However, the spending plan shows a $13,700,594 shortfall. Readington must provide more information on how the project will be funded.

 

Pursuant to N.J.A.C. 5:97-3.2(a)(4), the Township has provided an implementation schedule that sets forth a detailed timetable that demonstrates a realistic opportunity and for submittal of all the required information and documentation required by N.J.A.C. 5:97-6.7. The Township's mechanism checklist form includes a timetable for each step of the development process in accordance with N.J.A.C. 5:97-6.7(d), with certificates of occupancy being issued in Fall 2016 and as such, supporting documentation is required to be submitted to COAH two years before construction begins, in Spring 2013.

 

The affordable units must meet the requirements of the Uniform Housing Affordability Controls (N.J.A.C. 5:80-1 et seq.) with regard to controls on affordability, affirmative marketing, rental pricing, low/moderate split and bedroom distribution. Prior to marketing the affordable units, Readington must submit the required items pursuant to N.J.A.C. 5:97-6.7(e).

 

Readington is requesting 32 rental bonuses for the affordable units. Pursuant to N.J.A.C. 5:97-3.6(a)3ii, Readington must demonstrate a firm commitment in order to receive the rental bonuses. Readington must provide a status update as to the identification of a site for the project and any agreements or discussions with a developer for the construction of the project. The Township should note that in the event the units are not constructed in accordance with its implementation schedule, Readington may lose the rental bonuses pursuant to N.J.A.C. 5:97-3.6(a)3ii.

 

Readington submitted a response to the Premediation Report on June 29, 2009, indicating that "funding for the future municipally sponsored construction project(s)" would be derived from, amongst other sources, "Low Income Housing Tax Credits, Federal Home Loan Bank funds, DCA Balance Housing Program funds, [and] County HOME monies . . . ." The Township agreed to "commit to accelerating development" of the 32 Unit Project by identifying and acquiring a site by December 2009 and issuing certificates of occupancy by Fall 2014, two years earlier than previously stated in the HE/FSP. On August 19, 2009, Readington confirmed its commitment to accelerate development by issuing certificates of occupancy by Summer 2014.

On August 24, 2009, COAH issued a Compliance Report evaluating the Township's petition and revised HE/FSP, and formally recommended that the Township be granted third round substantive certification. With respect to the 32 Unit Project, COAH reaffirmed its findings that Readington "has provided an implementation schedule that sets forth a detailed timetable that demonstrates a realistic opportunity" for providing the 100% affordable housing as described in the HE/FSP, and further noted that "Readington has demonstrated a firm commitment in order to receive the rental bonuses" for the units by "committ[ing] to acquir[e] a site by December 2009 and to accelerat[e] the development of the site."

IV

Valley National Bank Objection

On October 7, 2009, counsel for VNB10 sent a letter to COAH requesting that it "refrain from granting substantive certification, because Readington's [HE/FSP] falls short of the obligation to create a realistic opportunity to satisfy its fair share of affordable housing . . . ." VNB requested that COAH "initiate discussions with Readington to consider redeveloping the Interstate Iron Works site . . . in Readington, with a 300 unit inclusionary development . . . ."

VNB argued that there were "two fundamental flaws with Readington's HE/FSP" (1) the fact that the Township did not identify the exact site location for the 32 Unit Project and, as a result, COAH was not able to "conduct[] any analysis of whether the proposed 32 unit 100% affordable housing development will be located on a 'suitable site,'" and (2) a concern that there was "insufficient funding available to implement Readington's proposed compliance mechanisms" based on a projected "shortfall of $13.7 million according to Readington's own analysis." The Township objected to VNB's letter, arguing that the letter was "out of time" because the 45-day comment period had long ended, and the VNB letter "raise[d] no new substantive issues or issues of material fact."

COAH addressed Readington's petition during its regularly scheduled meeting on October 14, 2009, during which counsel presented VNB's concerns about the petition as set forth in its objection letter of October 7, 2009. VNB's counsel spoke in support of consideration of the Interstate Iron Works site as a viable and readily available option for constructing affordable housing in the Township. Counsel also acknowledged that VNB was "not technically [an] objector[]" because it "missed the objector window." He stressed nonetheless that his client's comments were "material and information that COAH can consider." COAH voted to grant the Township third round substantive certification.

V

Because this appeal was filed before we decided In re Adoption of N.J.A.C. 5:96 & 5:97, we requested the parties to submit supplemental briefs addressing how this decision affects Readington's substantive certification. VNB argues in favor of vacating the substantive certification because this court invalidated the regulations upon which COAH based its authority to grant Readington's petition. Specifically, VNB argues that COAH approved the 32 Unit Project under the auspices of N.J.A.C. 5:97-3.2(a)(4)(iv) a provision that was expressly invalidated in our decision.

VNB also argues that, in light of this court's decision to invalidate the growth share methodology and order COAH to adopt rules that "incorporate a methodology similar to the methodology set forth in the first and second round rules," In re Adoption of N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. at 484, Readington's actual fair share may be "substantially higher" than that calculated at the time the Township submitted its petition. VNB notes that the Township's affordable housing obligation under the second round rules totaled 394 units, while its obligation under the third round rules totaled 192 units. According to VNB, these figures suggest that Readington's fair share obligation will increase once COAH reverts to a methodology similar to that used in the second round.

In response, COAH and the Township argue that the decision to grant Readington's certification petition was reasonable and proper under the Mount Laurel doctrine and the third round rules that existed at the time. Readington further asserts that our decision in In re Adoption of N.J.A.C. 5:96 & 5:97 "did not reverse substantive certification already granted by COAH to individual municipalities," but rather "invalidates administrative rules, and directs the administrative agency to amend its rules, which would allow for an administrative process for municipal adjustment, if any is required." Readington characterizes VNB's contentions that the Township's fair share of affordable housing units is likely to increase as "speculative at best," because it is not possible to predict changes under new rules which have not even been considered or adopted by COAH. In short, Readington argues that nothing in the In re Adoption of N.J.A.C. 5:96 & 5:97 decision requires reversal of its grant of certification.

It is generally accepted that an appellate court will not upset the ultimate determination of an administrative agency unless it is shown that the decision was arbitrary, capricious, or unreasonable. Davis Enters. v. Karpf, 105 N.J. 476, 485 (1987). A reviewing court is not to substitute its judgment for that of an administrative agency absent such a finding of abuse of discretion. See ibid. However, such a presumption of validity does not apply if the agency decision is found to violate legislative policies expressed or implied in the act governing the agency. See Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963).

Under the so-called "time of decision rule,"11 "an appellate court on direct review will apply the statute in effect at the time of its decision, at least when the legislature intended that its modification be retroactive to pending cases. The purpose of the principle is to effectuate the current policy declared by the legislative body a policy which presumably is in the public interest." Kruvant v. Mayor & Council of Cedar Grove, 82 N.J. 435, 440 (1980).

This principle of interpretation was expressed differently by the United States Supreme Court in a case involving an administrative agency decision, "[a] change in the law between a nisi prius and an appellate decision requires the appellate court to apply the changed law." Ziffrin, Inc. v. United States, 318 U.S. 73, 78, 63 S. Ct. 465, 469, 87 L. Ed. 621, 625 (1943). The time of decision rule "has been expressly followed with respect to municipal zoning ordinances" and other land use decisions, because zoning "generally must further the public health, safety, morals or welfare." Kruvant, supra, 82 N.J. at 442. Because "an amendment to or enactment of a zoning ordinance presumably advances those goals, application of the ordinance at the time of decision serves a beneficial purpose." Ibid.

The facts here do not present a traditional "time of decision rule" situation. COAH has yet to adopt amended third round rules and thus there is no "present law" to apply in place of the rules invalidated in In re Adoption of N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. 462. However, in the face of this void, doing nothing is simply not an option. We cannot see how the goals of the FHA are advanced by declining to reevaluate a certification decisions made by COAH under rules subsequently deemed antithetical to those goals. This is not a mere academic conundrum. The protections afforded a township by a grant of certification "insulat[ion] to a substantial extent from exclusionary zoning litigation" can significantly affect those in need of affordable housing opportunities for a substantial period of time. Indeed, this can last for decades because a certification remains valid until a subsequent round of substantive rules are promulgated by COAH. Id. at 472.

This court's decision In re Adoption of N.J.A.C. 5:96 & 5:97, though decided subsequent to COAH's grant of certification to Readington, specifically invalidates a key provision underpinning COAH's decision to count the 32 Unit Project toward Readington's fulfillment of its fair share obligation. In its brief, filed prior to the In re Adoption of N.J.A.C. 5:96 & 5:97 decision, COAH argued that its decision to count the 32 Unit Project, despite a lack of specific information about the location of a build site, was supported by N.J.A.C. 5:97-3.2(a)4, which "allow[s] a municipality to phase-in a 100 percent affordable municipally sponsored project over the course of the ten year substantive certification period."

COAH noted that, under N.J.A.C. 5:97-3.2(a)(4)(iv), "if the municipality intends to construct the project more than two years later, the municipality must submit specific information to support the development's viability," and asserted that "[t]he purpose of the regulation is to provide an appropriate level of flexibility under the growth share approach to permit municipalities to meet their obligation consistent with practical realities."

N.J.A.C. 5:97-3.2(a)(4)(iv), however, was specifically invalidated in In re Adoption of N.J.A.C. 5:96 & 5:97 based on this court's determination that the provision "is wholly dependent upon the validity of the growth share methodology for determining prospective need." Supra, 416 N.J. Super. at 488. This court noted that

COAH's sole justification for authorizing the grant of substantive certification based on such an amorphous plan for satisfaction of a municipality's affordable housing obligations is that under [its] growth share [methodology], the obligation to construct does not arise unless and until the growth occurs, and therefore N.J.A.C. 5:97-3.2(a)(4)(iv) was designed to address the limited area of 100% affordable housing programs, and the issue of the possible expenditure of municipal funds, by not requiring that a site be identified or a funding commitment be made if actual growth is not occurring.

 

[Id. at 487-88 (alterations in original) (internal quotation marks omitted).]

 

Our decision in In re Adoption of N.J.A.C. 5:96 & 5:97 thus supports the concerns raised by VNB here. As argued by VNB, a methodology that "authorizes a municipality to obtain substantive certification of a compliance plan that proposes to construct municipally-funded affordable housing without any specifics regarding the location of the site or source of funding," id. at 511, does not provide a "realistic opportunity" for affordable housing and is thus inconsistent with the FHA. Id. at 511.

Readington argues, however, that VNB's argument regarding the 32 Unit Project is moot because the Township has moved forward with purchasing a specific, suitable plot of land on which it plans to construct the Project. We agree. As a practical matter, our invalidation of N.J.A.C. 5:97-3.2(a)(4)(iv) is not grounds for revoking certification if Readington has subsequently demonstrated that the concerns we identified in In re Adoption of N.J.A.C. 5:96 & 5:97 for invalidating the provision have been suitably addressed by the Township.

On December 30, 2009, the Township provided COAH with "documentation regarding the acquisition and the suitability of the site to be acquired by the Township for a municipally sponsored 100% affordable family rental development." This included details about the site's access to transportation, and utilities, as well as the contract of sale. This additional information elevates the 32 Unit Project from an "amorphous plan" as decried in In re Adoption of N.J.A.C. 5:96 & 5:97, to a concrete framework for fulfilling that portion of the Township's fair share obligation. Under these circumstances, the invalidation of N.J.A.C. 5:97-3.2(a)(4)(iv) alone is not grounds for reversal.

The part of our holding in In re Adoption of N.J.A.C. 5:96 & 5:97 invalidating the use of the growth share methodology for calculating a municipality's fair share obligation presents a more viable concern in this matter. As argued by VNB, because we ordered COAH to revert back to the same or similar methodology used to calculate a municipality's prospective need in the first and second round rules, see In re Adoption of N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. at 485, it is conceivable that Readington's overall fair share obligation will change under the re-amended rules. Should Readington's obligation increase under the re-amended rules, it would be improper, as argued by VNB, to allow the Township to continue to receive the benefits of certification during the remainder of the third round period.

COAH argues that, because it has yet to adopt re-amended third round rules pursuant to the court's holding in In re Adoption of N.J.A.C. 5:96 & 5:97, "it is not clear what changes will be required to Readington's plan or whether its affordable housing plan will need more or less of the affordable housing proposed in the plan." COAH thus contends that "[u]ntil such a determination is made, there is no basis on which to invalidate substantive certification," and suggests that this court may "deem it appropriate to remand Readington's substantive certification to COAH for action consistent with the October 8[, 2010] decision" without presently vacating the grant of certification.

In In re Adoption of N.J.A.C. 5:96 & 5:97, we stated that we would not issue a blanket stay of COAH proceedings, but that "any municipality or interested party [could] apply for a stay to COAH or the court in which a Mount Laurel case is pending." Id. at 512. We further noted that "[a]ny such application should be decided in light of the status of the individual municipality's compliance with its affordable housing obligations and all other relevant circumstances." Ibid.

Readington has taken steps to implement its current HE/FSP plan, including providing more concrete information regarding the site for the 32 Unit Project. The Township is thus substantially moving ahead with compliance. Under these circumstances, immediate invalidation of certification is not warranted. However, we remand the matter to COAH12 for reevaluation of Readington's fair share obligation following its adoption of the re-amended third round rules pursuant to In re Adoption of N.J.A.C. 5:96 & 5:97. This will allow Readington to retain the benefits of certification during the regulatory transitional period in light of its apparent compliance, while assuring that the Township will not be permitted to avoid the burden of a potentially higher fair share obligation simply by virtue of its timing in filing its petition for substantive certification.

VI

Affirmed and remanded to COAH for such further action as may be warranted consistent with this decision.

 

1 By order dated January 14, 2011, the Court stayed the part of our decision that directed COAH to promulgate new third round regulations by a date certain.

2 S. Burlington Cnty. NAACP v. Twp. of Mount Laurel (Mount Laurel II), 92 N.J. 158 (1983); S. Burlington Cnty. NAACP v. Twp. of Mount Laurel (Mount Laurel I), 67 N.J. 151, cert. denied, 423 U.S. 808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975).

3 "Filtering" occurs when "more desirable housing options bec[o]me available in the housing market, [such that] middle- and upper-income households . . . move out of the existing housing, making it available to become the home for a lower-income household." Id. at 24.

4 "'Residential conversion' occurs when additional dwelling units [are] created from already existing structures." Id. at 24.

5 "'Spontaneous rehabilitation' occurs when dilapidated housing, affordable to low- and moderate-income households, [is] rehabilitated by the private market without the assistance of any government program." Id. at 24.

6 "Rehabilitation share," as defined in the third round rules, is "the number of existing housing units as of April 1, 2000 that are both deficient and occupied by households of low or moderate income . . . ." Id. at 34 (quotation omitted).

7 As noted in footnote 1, infra, the stay granted by the Supreme Court in response to COAH's motion only affects COAH's obligation to promulgate amended third round rules by a date certain.

8 Readington was not assigned a third-round rehabilitation share.

9 As noted in VNB's brief: "The HE/FSP erroneously states that Readington seeks rental bonus credits for 30 of these units. Elsewhere, HE/FSP provides that Readington seeks credit for 32 rental bonus credits."

10 VNB is a mortgagee of the Interstate Iron Works Site and has received a Judgment in Foreclosure. According to VNB, the current owner of the Site "has knowledge of and consented to the filing of the October 7, 2009 letter."

11 The Municipal Land Use Law was amended on May 4, 2010, abolishing the time of decision rule except for ordinances "relating to health and public safety." S. 82, Pub. L. No. 2010, ch. 9. However, the amendment did not become effective until May 5, 2011, and thus is not applicable to the present matter.

12 Although the Governor sought to abolish COAH on June 29, 2011, via a reorganization plan, 43 N.J.R. 1621(a), we held such action invalid and in violation of the Legislature's exclusive authority to abolish an agency created and established as part of the FHA. In re a Plan for the Abolition of the Council on Affordable Housing, ___ N.J. Super. ___, ___ (App. Div. 2012) (slip op. at 45-46). We thus expect that our remand will be carried out as expeditiously as possible.