Page 1 LEXSEE 2010 N.J. SUPER. LEXIS 201landuselaw.wustl.edu/cases/A Growth Share Case.pdf ·...

LEXSEE 2010 N.J. SUPER. LEXIS 201

IN THE MATTER OF THE ADOPTION OF N.J.A.C. 5:96 AND 5:97 BY THENEW JERSEY COUNCIL ON AFFORDABLE HOUSING.

DOCKET NOS. A-5382-07T3, A-5404-07T3, A-5423-07T3, A-5424-07T3,A-5429-07T3, A-5451-07T3, A-5455-07T3, A-5458-07T3, A-5460-07T3, A-5461-07T3,A-5590-07T3, A-5752-07T3, A-5756-07T3, A-5757-07T3, A-5758-07T3, A-5760-07T3,A-5761-07T3, A-5763-07T3, A-5765-07T3, A-5767-07T3, A-5871-07T3, A-5920-07T3

SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION

2010 N.J. Super. LEXIS 201

December 1, 2009, ArguedOctober 8, 2010, Decided

SUBSEQUENT HISTORY: [*1]Approved for Publication October 8, 2010.

PRIOR HISTORY: On appeal from the Council onAffordable Housing.In re Adoption of N.J.A.C. 5:94 & 5:95 By New JerseyCouncil On Affordable Housing, 390 N.J. Super. 1, 914A.2d 348, 2007 N.J. Super. LEXIS 20 (App.Div., 2007)

COUNSEL: Edward J. Buzak argued the cause forappellant New Jersey State League of Municipalities(The Buzak Law Group, attorneys; Mr. Buzak and SusanL. Crawford, on the brief).

Stuart R. Koenig argued the cause for appellants in A5404-07: Marvin J. Joss; the Townships of Clinton,Bethlehem, Readington, Union, Bedminster, Bernards,Bridgewater, Montgomery, Warren, Hanover, Roxbury,Greenwich and Millstone; the Town of Clinton; and theBoroughs of Bernardsville, Peapack-Gladstone,Watchung, Florham Park, Wharton, and Roseland(Stickel, Koenig & Sullivan, attorneys; Mr. Koenig, onthe brief).

Ronald C. Morgan argued the cause for appellantsTownship of Medford in A-5423-07 and Township ofCinnaminson in A-5460-07 (Parker McCay, attorneys;

Douglas E. McCollister, on the brief).

Stephen Eisdorfer argued the cause for appellant NewJersey Builders Association in A-5424-07 (Hill Wallack,attorneys; Mr. Eisdorfer, Thomas F. Carroll, III, andHenry T. Chou, on the brief).

Christopher J. Norman argued the cause for appellantTownship of Mount Laurel in A-5429-07 (Norman,Kingsbury & Norman, attorneys; Mr. Norman, [*2] onthe brief).

Kevin D. Walsh and Adam M. Gordon argued the causefor appellant in A-5451-07 and intervenor in A-5761-07(Fair Share Housing Center, attorneys; Mr. Walsh, Mr.Gordon, and Peter J. O'Connor, on the brief).

Jeffrey Kantowitz argued the cause for appellants KingsRow Homes, LLC, MTAE, Inc., & Kenneth and AliceMartin in A-5455-07 (Day Pitney LLP, attorneys; Mr.Kantowitz, of counsel and on the brief).

John F. Russo, Jr., argued the cause for appellantsTownships of Toms River, Jackson & Brick inA-5458-07 (Russo & Cassidy, attorneys; Mr. Russo, onthe brief).

Jeffrey R. Surenian argued the cause for appellantsTownship of Wall in A-5752-07; City of Summit in

A-5756-07; Township of Oldmans in A-5757-07;Township of Mantua in A-5758-07; Township ofFreehold in A-5760-07; Township of Egg Harbor inA-5761-07; Borough of Eatontown in A-5763-07;Borough of Atlantic Highlands in A-5767-07; andTownship of Middletown in A-5871-07 (Jeffrey R.Surenian and Associates, attorneys; Mr. Surenian, ofcounsel and on the briefs; Michael A. Jedziniak, Nancy L.Holm, and Donna A. McBarron, on the briefs).

Kevin J. Moore argued the cause for appellant NewJersey Chapter of the National Association [*3] ofIndustrial and Office Properties in A-5920-07 (SillsCummis & Gross, attorneys; Mr. Moore, of counsel;Robert A. Kasuba, on the brief).

Buchanan Ingersoll & Rooney, attorneys for appellantSJM Communities, Inc., in A-5461-07 (Henry L.Kent-Smith, of counsel and on the brief).

Flaster/Greenberg, attorneys for appellant ISPManagement Co., Inc., in A-5590-07 (Carl S. Bisgaierand David R. Oberlander, on the brief).

Marrazzo & Platt, attorneys for appellant Borough ofBerlin in A-5765-07 (Stuart A. Platt, of counsel; Mr.Platt, Jeffrey R. Surenian and Donna A. McBarron, onthe briefs).

Nancy Kaplen, Assistant Attorney General, argued thecause for respondent Council on Affordable Housing(Anne Milgram, Attorney General, attorney; Ms. Kaplen,of counsel; Geraldine Callahan, George N. Cohen, andDonald M. Palombi, Deputy Attorneys General, on thebrief).

JUDGES: Before Judges SKILLMAN, FUENTES andSIMONELLI. The opinion of the court was delivered bySKILLMAN, P.J.A.D.

OPINION BY: SKILLMAN

OPINION

Outline of Opinion

Page

1. Introduction

2. Background: Partial Invalidation by Appellate Division of

Original Third Round Rules and Adoption by COAH of Revised

Third Round Rules

3. Pending Legislation that Would Abolish COAH

4. Invalidating "Growth Share" Methodology for Allocating

Prospective Need for Affordable Housing

5. Remedy for Declaration of Invalidity of "Growth Share"

Methodology: Order Requiring COAH to Use Methodology Similar

to Those Used to Determine Prospective Need in Prior Rounds

6. Inappropriateness of Requiring COAH to Continue Use of

Projected Statewide and Regional Prospective Need

Determined Under Invalid Revised Third Round Rules

2010 N.J. Super. LEXIS 201, *2

7. Invalidating N.J.A.C. 5:97-3.2(a)(4)(iv), Which Authorizes

Substantive Certification of Compliance Plans that Rely Upon

Municipality-Sponsored Affordable Housing Projects Without

Specifying Location of Sites or Source of Funding

8. Invalidating Parts of Revised Third Round Rules that Do Not

Provide Sufficient Incentives for Developers to Construct

Inclusionary Developments

9. Invalidating N.J.A.C. 5:97-3.5, Which Authorizes Rental

Bonus Credits for Prior Round Obligations

10. Upholding N.J.A.C. 5:97-3.18 and -3.19, Which Authorize

"Smart Growth" and "Redevelopment" Bonuses

11. Invalidating N.J.A.C. 5:97-3.17, Which Authorizes

"Compliance" Bonuses

12. Upholding COAH's Determination of Prior Round Affordable

Housing Obligations

13. Upholding COAH's Determination Not to Reallocate Present

Need for Affordable Housing in Urban Municipalities to

Other Municipalities in the Region

14. Rejecting Argument that Third Round Rules Improperly Require

Expenditure of Municipal Revenues to Satisfy Affordable

Housing Obligations

15. Rejecting Arguments that Third Round Rules were not Adopted

in Conformity with Administrative Procedure Act

16. Rejecting Twenty Municipalities' Argument Regarding

Definition of "Prior Round Obligations"

17. Egg Harbor's Challenge to Validity of N.J.A.C. 5:97-5.8(a),


Which Interprets 1000-Unit Cap Upon Affordable Housing

Obligations

18. Credits for Publicly-Financed Affordable Housing Units

19. Rejecting Requests for Relief in Pending Law Division

Actions

20. Rejecting Requests to Divest COAH of Responsibility for

Adopting Third Round Rules and to Appoint a Master

21. Conclusion: COAH is Directed to Adopt New Third Round Rules

Within Five Months

The [*4] opinion of the court was delivered by

SKILLMAN, P.J.A.D.

1. Introduction

This opinion addresses twenty-two appealschallenging the validity of revised rules of the Council onAffordable Housing (COAH), adopted under the FairHousing Act (FHA), N.J.S.A. 52:27D-301 to -329.19 ,which establish the obligations of municipalities toprovide affordable housing during the "third round"period from 1999 to 2018 and provide mechanisms formunicipalities to achieve compliance with thoseobligations. In In re Adoption of N.J.A.C. 5:94 and 5:95,390 N.J. Super. 1, 914 A.2d 348 (App. Div. 2007) (In reN.J.A.C. 5:94), we invalidated substantial portions ofCOAH's original third round rules and remanded toCOAH for the adoption of revised rules in conformitywith our opinion. We conclude that COAH's revised thirdround rules suffer from many of the same deficiencies asthe original third round rules. Therefore, we once againinvalidate substantial portions of those rules and remandto COAH.

2. Background: Partial Invalidation by AppellateDivision of Original Third Round Rules and Adoption byCOAH of Revised Third Round Rules

The articulation in Southern Burlington CountyNAACP v. Township of Mount Laurel, 67 N.J. 151, 336

A.2d 713, [*5] appeal dism. and cert. denied, 423 U.S.808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975) (Mount LaurelI), of the Mount Laurel doctrine, under which developingmunicipalities were held to have an obligation to providea realistic opportunity through their zoning for theconstruction of affordable housing for lower incomehouseholds, and the evolution of that doctrine in SouthernBurlington County NAACP v. Township of Mount Laurel,92 N.J. 158, 456 A.2d 390 (1983) (Mount Laurel II), werediscussed at length in our prior opinion, 390 N.J. Super.at 15-21, 915 A.2d 348, and therefore do not need to berepeated here. 1

1 We only note that Mount Laurel II extendedthe obligation to provide a realistic opportunityfor affordable housing for lower incomehouseholds to all municipalities in the state ratherthan, as in Mount Laurel I, limiting that obligationto developing municipalities. See 92 N.J. at214-15, 236-37, 243-44, 456 A.2d 390.

The Legislature enacted the FHA in 1985 to conferresponsibility upon an administrative agency for theadministration and enforcement of the Mount Laureldoctrine. See generally Hills Dev. Co. v. Twp. ofBernards, 103 N.J. 1, 19-23, 31-40, 510 A.2d 621 (1986).To accomplish this objective, the Legislature assignedprimary [*6] responsibility for the determination ofmunicipal affordable housing obligations and thedevelopment of mechanisms for compliance with thoseobligations to COAH. Id. at 31-37, 510 A.2d 621. The


FHA authorizes a municipality that has devised a plan forcompliance with its affordable housing obligation topetition COAH for substantive certification of the plan.N.J.S.A. 52:27D-313. If COAH grants substantivecertification, the municipality is insulated to a substantialextent from exclusionary zoning litigation for a period ofwhat was previously six and is now ten years. N.J.S.A.52:27D-313(a). 2 A municipality's participation in theadministrative processes established by the FHA is purelyvoluntary; a municipality that chooses to litigate anyexclusionary zoning actions in the courts, withoutpetitioning COAH for substantive certification, may doso. Hills, supra, 103 N.J. at 35-36, 510 A.2d 621.

2 This insulation is not absolute. Substantivecertification only creates a "presumption ofvalidity" of a municipality's affordable housingplan. N.J.S.A. 52:27D-317(a). Furthermore, amunicipality's zoning remains subject to challengeon grounds other than its satisfaction of therequirements of the Mount Laurel doctrine [*7]and the FHA. See Saratoga v. Borough of W.Paterson, 346 N.J. Super. 569, 577-78, 788 A.2d841 (App. Div.), certif. denied, 172 N.J. 357, 798A.2d 1270 (2002).

In Hills, the Supreme Court upheld theconstitutionality of the FHA. The Court stated that "[a]tthis point, the presumption of constitutionality mustprevail. The judiciary must assume, if the assumption isat all reasonable, that the [FHA] will function well andfully satisfy the Mount Laurel obligation." 103 N.J. at 43,510 A.2d 621. The Court cautioned, however, that "[i]f, . .. as predicted by its opponents, the [FHA] . . . achievesnothing but delay, the judiciary will be forced to resumeits appropriate role." Id. at 23, 510 A.2d 621.

In accordance with the FHA's mandates that COAH"[d]etermine housing regions," N.J.S.A. 52:27D-307(a);"[e]stimate the present and prospective need for low andmoderate income housing at the State and regionallevels[,]" N.J.S.A. 52:27D-307(b); and "[a]dopt criteriaand guidelines for [m]unicipal determination of itspresent and prospective fair share of the housing need ina given region," N.J.S.A. 52:27D-307(c)(1), COAHadopted "first round" and "second round" substantiverules prescribing municipalities' affordable housingobligations for the [*8] six-year periods running from1987 to 1993 and 1993 to 1999 and the mechanisms forachieving compliance with those obligations. N.J.A.C.

5:92-1.1 to -18.20, and App. A to F; N.J.A.C. 5:93-1.1 to-15.1, and App. A to H. Those rules were described indetail in our prior opinion, In re N.J.A.C. 5:94, supra,390 N.J. Super. at 23-25, 914 A.2d 348, and there is noneed to repeat those descriptions here. Suffice it to notethat COAH's methodologies for determining municipalaffordable housing obligations in the first and secondround rules were quite similar to the methodologies thathad been developed by trial courts before enactment ofthe FHA. See id. at 23-24, 510 A.2d 621.

In Township of Bernards v. State, Department ofCommunity Affairs, 233 N.J. Super. 1, 12-22, 558 A.2d 1(App. Div.), certif. denied, 118 N.J. 194, 570 A.2d 959(1989), we rejected a series of challenges to parts of theCOAH first round rules, except for one section dealingwith the credits a municipality may claim in satisfying itsaffordable housing obligations. In Calton Homes, Inc. v.Council on Affordable Housing, 244 N.J. Super. 438,446-53, 582 A.2d 1024 (App. Div. 1990), certif. denied,127 N.J. 326, 604 A.2d 601 (1991), we rejectedchallenges to other parts of the first round rules, except[*9] for a rule that established a 1,000-housing-unit capon any municipality's affordable housing obligation. In Inre Township of Warren, 247 N.J. Super. 146, 179-83, 588A.2d 1227 (App. Div. 1991), rev'd in part on othergrounds, 132 N.J. 1, 622 A.2d 1257 (1993), we rejected achallenge to COAH's regulations, incorporated in the firstand second round rules, which authorized municipalitiesto adopt affordable housing plans that failed to providefor housing units that are affordable to householdsearning less than 40% of the region's median income.Thus, with limited exceptions, the challenges to COAH'sfirst and second round and other related rules wereunsuccessful.

Although COAH should have adopted its third roundrules by 1999, when the effective period of the secondround rules expired, COAH did not adopt its originalthird round rules until 2004. As we have previouslynoted, this delay was "dramatic and inexplicable," and"[t]he public policies underlying the FHA and the MountLaurel cases [were], quite obviously, . . . frustrated byinaction." In re Six Month Extension of N.J.A.C. 5:91-1et seq.,372 N.J. Super. 61, 95-96, 855 A.2d 582 (App.Div. 2004), certif. denied, 182 N.J. 630, 868 A.2d 1033(2005).

The original third round rules were [*10] "designedto permit municipalities to meet a cumulative fair share


beginning in 1987 and ending on January 1, 2014." In reN.J.A.C. 5:94, supra, 390 N.J. Super. at 27, 914 A.2d348. There were three major components of thiscumulative fair share:

(1) a municipality's "rehabilitationshare" based on the condition of housingrevealed in the data gathered for the 2000Census, previously known as amunicipality's indigenous need; (2) amunicipality's unsatisfied prior roundobligation (1987 through 1999),satisfaction of which will be governed bythe second round rules; and (3) amunicipality's "growth share" based onhousing need generated by statewide jobgrowth and residential growth from 1999through 2014.

[Ibid.]

COAH's original third round rules adopted a numberof significant changes in the methodologies that had beenused in the first and second round rules. The mostsignificant of those changes was the adoption of a"growth share" approach for determining a municipality'sfair share of the need for affordable housing generated byjobs and residential growth during the third round periodfrom 1999 through 2014. Under such a methodology, amunicipality is not required to provide a specificpredetermined [*11] number of affordable housing unitsbut only to provide additional affordable housing if job orresidential growth actually occurs in the municipality. Seeid. at 29-30, 914 A.2d 348. Another highly significantchange in the third round rules was the authorization formunicipalities to require developers to constructaffordable housing, without providing any compensatingbenefit, in particular, without granting the developerpermission to construct housing at a higher density thanotherwise would apply under existing municipal zoning.

The Fair Share Housing Center (Fair Share) and theNew Jersey Builders Association (Builders Association),both of which are also appellants in these appeals,together with two other parties, filed appeals challengingthe validity of the original third round rules. Judge Cuffwrote a comprehensive opinion, which rejected some, butsustained other, of appellants' challenges to the originalrules. Id. at 32-88, 914 A.2d 348.

Judge Cuff's opinion rejected appellants' argumentsthat the "rehabilitation share" of a municipality'saffordable housing obligation, sometimes also referred toas present need, should include "cost burdened" low- andmoderate-income households that reside in standard[*12] housing and households that lack permanenthousing or live in overcrowded housing, id. at 33-38, 914A.2d 348; that COAH's methodology for identifyingsubstandard housing was "arbitrary and unreasonable,"id. at 38-41, 914 A.2d 348; that the third round rulesimproperly eliminated the part of the first and secondround methodologies that required reallocation of excesspresent need in poor urban municipalities to othermunicipalities in the region, id. at 56-60, 914 A.2d 348;that the use of regional contribution agreements to satisfypart of a municipality's affordable housing obligationsviolates the Mount Laurel doctrine and federal and statestatutory provisions, id. at 80-81, 914 A.2d 348; that theallowance of bonus credits towards satisfaction of amunicipality's affordable housing obligationsunconstitutionally dilutes those obligations, id. at 81-84,914 A.2d 348; and that the rule relating to vacant landadjustments violates the Mount Laurel doctrine and theFHA, id. at 84-86, 914 A.2d 348.

However, Judge Cuff's opinion invalidated the partsof the original third round rules that reduced statewideand regional affordable housing need based on "filtering,"id. at 41-46, 914 A.2d 348; adopted a growth shareapproach for determining a municipality's fair share ofprospective [*13] needs for affordable housing, id. at49-56, 914 A.2d 348, and excluded job growth resultingfrom rehabilitation and redevelopment in determining jobgrowth, id. at 61-65, 914 A.2d 348; compelled developersto construct affordable housing without anycompensating benefits, id. at 71-75, 914 A.2d 348;authorized a municipality to give a developer the optionof payment of a fee in lieu of constructing affordablehousing, but provided no standards for setting those fees,id. at 69-71, 914 A.2d 348; and authorized a municipalityto restrict up to 50% of newly constructed affordablehousing to households with residents aged fifty-five orover, id. at 75-80, 914 A.2d 348. 3 The court's rationalesfor the various rulings relevant to the issues presented inthese appeals are discussed later in this opinion.

3 Our opinion held that "COAH would notviolate the Mount Laurel doctrine if it continuedto allow municipalities to age-restrict twenty-fivepercent of new development." Id. at 80, 914 A.2d

2010 N.J. Super. LEXIS 201, *10

348. Consistent with this holding, COAH'srevised third round rules only allow amunicipality to age-restrict a maximum oftwenty-five percent of the affordable units.N.J.A.C. 5:97-3.8 and -3.10 to -3.12. No partychallenges the authorization for such anage-restriction.

Based on our [*14] conclusion that the original thirdround rules were invalid in a number of significantrespects, we remanded to COAH to adopt revised thirdround rules that conformed with the FHA and therequirements of the New Jersey Constitution asinterpreted in the Mount Laurel decisions. Id. at 88, 914A.2d 348. We directed that the revised rules be adoptedwithin six months. Ibid.

COAH's process of reconsideration of the thirdround rules included retention of a number of experts,who produced lengthy and highly complex reportsregarding the amount of vacant development land in thestate, projections of jobs and residential growth through2018, and methodologies for determining municipalaffordable housing obligations. 4 This process resulted ina lengthy delay in COAH's adoption of the revised thirdround rules, and we twice granted COAH extensions oftime for completing the remand.

4 We note that COAH paid these consultantsnearly $ 2 million.

COAH finally proposed the revised third round rulesin January 2008. Although it received substantial publiccomments objecting to the proposed rules, on June 2,2008, COAH adopted the rules without substantialchange. See 40 N.J.R. 2690(a); 40 N.J.R. 3161(a).Twenty-four [*15] notices of appeal were filedchallenging the validity of the revised rules. Two of thoseappeals were not pursued and have been dismissed.

Thereafter, COAH proposed, and on October 20,2008, adopted, substantial amendments to the revisedthird round rules, which responded to some of theobjections to the rules raised during the public commentperiod. 40 N.J.R. 5962(a); 40 N.J.R. 5965(a). The revisedrules in their final form may be found at N.J.A.C.5:96-1.1 to -20.4, and N.J.A.C. 5:97-1.1 to -10.5 andAppendices A through F.

Appellants filed amended notices of appealchallenging the revised third round rules as amended in

October 2008. We now consolidate the appeals.

3. Pending Legislation that Would Abolish COAH

Before addressing appellants' numerous argumentsregarding the validity of COAH's revised third roundrules, we note that the Senate passed a bill on June 10,2010, which would abolish COAH and transfer many ofits responsibilities to the Department of CommunityAffairs. Office of Legislative Services, New JerseyLegislative Digest, 214th Leg., 1st Sess. (June 10, 2010),at 1, 2, and 7. The Assembly Housing and LocalGovernment Committee held a hearing on the Senate billon June [*16] 17, 2010. Office of Legislative Services,New Jersey Legislative Calendar, 214th Leg., 1st Sess.(June 15, 2010), at 1. However, the Committee has takenno action on the bill since then. Bill Status Report on S-1,http://www.njleg.state.nj.us/bills/BillV iew.asp (lastvisited Sept. 28, 2010). Therefore, it is difficult to predictwhether this proposed legislation will be enacted.

Furthermore, even if the Assembly passed the Senatebill in its current form and the Governor signed it intolaw, these appeals would not be mooted. Although theSenate bill as passed would abolish COAH, SenateComm. Substitute for S-1, 214th Legis., § 2 (2010), thebill would preserve the effectiveness, at least on atemporary basis, of the rules and regulations adopted byCOAH before its abolition, including the revised thirdround rules challenged in these appeals. Section 18(f) ofthe bill provides:

The [Department of Community Affairs]may apply the regulations of [COAH] ineffect at the time a petition for substantivecertification was filed, or may adopt newregulations, or revisions or amendments toexisting regulations, concerning petitionsfor substantive certification.

Section 20(d) provides:A municipality [*17] that received

substantive certification under N.J.A.C.5:96 and N.J.A.C. 5:97, [the revised thirdround rules challenged in these appeals]shall be considered an inclusionarymunicipality pursuant to this section untilthe end of its approved certificationperiod; provided that the municipalitycontinues to fully and faithfully implement

2010 N.J. Super. LEXIS 201, *13

the provisions of its fair-share plan.

Section 21(c) provides:A municipality, in evaluating the

economic viability of an application for aninclusionary development, may be guidedby the applicable provisions of N.J.A.C.5:96 and N.J.A.C. 5:97, . . .

Therefore, there is no reason to delay issuance of thisopinion pending possible enactment of proposedlegislation that could diminish the significance of, butwould not moot, these appeals.

4. Invalidating "Growth Share" Methodology forAllocating Prospective Need for Affordable Housing

One of the primary grounds upon which weinvalidated substantial portions of the original third roundrules was COAH's use of a "growth share" methodologyto allocate the responsibility for the prospective need foraffordable housing to municipalities, rather thanassigning a specific numerical prospective needobligation [*18] to every municipality located in agrowth area, as the first and second round rules had done.See In re N.J.A.C. 5:94, supra, 390 N.J. Super. at 23-24,29-30, 49-50, 914 A.2d 348.

We invalidated the growth share methodologyincorporated in the original third round rules on twogrounds. First, we concluded that the record did notcontain reliable data showing that "the State as a whole,and . . . each region within the State, [has] sufficientvacant developable land within growth areas to enable the[growth share] ratios to generate enough housing to meetthe need[,]" and that without such data, "COAH cannotreasonably assume that its growth share methodologywill provide a realistic opportunity to meet the statewideand regional need." Id. at 54, 914 A.2d 348. Therefore,we ruled that "the growth share methodology can be validonly if COAH has data from which it can reasonablyconclude that the allocation formula can result insatisfaction of the statewide need." Ibid.

Second, and more fundamentally, we concluded thatthe growth share methodology adopted in the originalthird round rules was invalid because it allowed amunicipality to avoid any substantial responsibility forsatisfying its obligations to provide [*19] affordablehousing by adopting land use regulations that discourage

growth:

[T]he growth share approach encouragesmunicipalities to adopt master plans andzoning ordinances that retard growth, inorder to minimize the municipality's fairshare allocation. . . . "Under growth share,a municipality determines where and howmuch it will grow, knowing that if itchooses to grow, it has an obligation toprovide affordable housing as part of thegrowth." . . . [A]s pointed out in commentsto COAH, prior experience "hasdocumented that if permitted to do so,municipalities are likely to utilizemethodologies that are self-serving andcalculated to minimize municipal housingobligations." The Court has recognizedthat municipalities will adopt land useregulations to minimize affordablehousing obligations if permitted to do so.That is why the Court [in Mount Laurel II]rejected the "simpler" approach ofallocating a municipality's fair share basedon the municipality's own growthprojections.

. . . We agree with appellants thatunder the growth share approach currentlyembodied in the COAH regulations, amunicipality may control its destiny byadopting measures to discourage or retardresidential [*20] and non-residentialdevelopment, simply by "downsizing"remaining developable land.

Any growth share approach mustplace some check on municipal discretion.The rules, as they currently exist, permitmunicipalities with substantial amounts ofvacant developable land and access to jobopportunities in nearby municipalities toadopt master plans and zoning ordinancesthat allow for little growth, and thereby asmall fair share obligation. . . . Ifmunicipalities with substantial amounts ofvacant land and access to infrastructurecan decide for themselves whether andhow much to grow, it is highly likely thathousing opportunity will fall far short of

2010 N.J. Super. LEXIS 201, *17

identified housing need. Therefore, thecurrent growth share approach violatesboth the Mount Laurel doctrine and theFHA.

[Id. at 55-56, 914 A.2d 348 (citationsomitted).]

COAH's consultants conducted an extensive vacantland study to address the part of our prior opinion whichconcluded that such an analysis was a prerequisite to adetermination of the validity of COAH's growth sharemethodology. This study concluded that "there issufficient vacant land and remaining development andredevelopment capacity in growth areas of the State as awhole and in [*21] each of the COAH Regions, tosupport the use of a growth-share methodology andgrowth-share ratios for distributing affordable housingneeds." 40 N.J.R. 5965(a), 6099 (Oct. 20, 2008).

A number of appellants argue that COAH's vacantland study was inadequate and that the conclusions itreached were erroneous. We have no need to addressthose arguments because we conclude that even if thevacant land study accurately identified the availablevacant developable land in the State, the growth sharemethodology contained in the revised third round rules isinvalid because it allows a municipality to avoid anysignificant obligation for satisfying the prospective needfor affordable housing by adopting land use regulationsthat discourage growth.

In the revised third round rules, COAH has madeprojections of the number of housing units that will bebuilt, and the number of jobs that will result from newnon-residential development, in each municipalitybetween 1999 and 2018. See N.J.A.C. 5:97-2.2(d),-2.4(a), and App. F. Based upon these projected growthfigures, COAH has assigned each municipality a housingobligation proportional to the projected growth within themunicipality -- one unit [*22] of housing obligation foreach five units of projected growth in the number ofhousing units and one unit of housing obligation forevery sixteen jobs projected to be created. N.J.A.C.5:97-2.2(d).

On an initial review, the modified version of thegrowth share methodology adopted in the third roundrules may appear to have eliminated the power ofmunicipalities to relieve themselves of the obligation of

providing any significant amount of affordable housingby adopting land use regulations that discourage growth.N.J.A.C. 5:97-2.5(e) provides:

If the actual growth share obligationdetermined in (c) above is less than thegrowth share obligation projected pursuantto N.J.A.C. 5:97-2.4, the municipalityshall continue to provide a realisticopportunity for affordable housing toaddress the projected growth share,through inclusionary zoning or any of themechanisms permitted by N.J.A.C. 5:97-6.

Similarly, N.J.A.C. 5:97-2.2(e) provides in pertinent part:[I]f the actual growth share obligation is

less than the projected growth shareobligation, the municipality shall continueto provide a realistic opportunity foraffordable housing to plan for theprojected growth share throughinclusionary [*23] zoning or any of themechanisms permitted by N.J.A.C. 5:97-6.

Considered in isolation, these sections would seem toindicate that a municipality must provide a realisticopportunity for its full "projected growth share" ofaffordable housing even if its "actual growth shareobligation," as determined by the actual increase in thenumbers of residences and jobs in the municipality, isless than the projected growth share.

However, a review of other sections of the rules andCOAH's statements of policy indicate that this is notCOAH's intent, and that COAH plans to limit municipalobligations to satisfy the prospective need for affordablehousing to the number of units determined by actualgrowth rather than COAH's projected growthcalculations. Appendix A to the third round substantiverules, N.J.A.C. 5:97, entitled "Growth Share RatioMethodology," states:

[M]unicipalities incur obligations toprovide affordable housing only when andto the extent growth occurs. Eachmunicipality's current round affordablehousing obligation is based on actualgrowth while maintaining zoning based onprojections to establish a realisticopportunity for affordable housing.

2010 N.J. Super. LEXIS 201, *20

[Emphasis added.]

The means by [*24] which COAH may relieve amunicipality of the obligation to provide any affordablehousing beyond its actual growth share is provided by thethird round procedural rules. One of those rules providesthat COAH's substantive certification of a municipality'saffordable housing plan shall be subject to biennialreview. N.J.A.C. 5:96-10.1(a). One purpose of thisreview is "to verify that the construction or provision ofaffordable housing has been in proportion to the actualresidential growth and employment growth in themunicipality. . . ." Ibid. Another procedural rule providesthat "[a]ny person may request a waiver from a specificrequirement of [COAH's] rules at any time." N.J.A.C.5:96-15.1.

The availability of COAH's biennial review ofmunicipal affordable housing plans and COAH's powerto waive the requirements of its own rules as proceduralvehicles for COAH to limit a municipality's affordablehousing obligation to its actual growth share is confirmedby COAH's responses to public comments regarding therevised third round rules:

The projection of growth share is to beused as a planning tool to establishreasonable targets. Municipalities will berequired to zone or provide other [*25]mechanisms pursuant to N.J.A.C. 5:97-6in keeping with their projections. Theactual obligation will be determined basedupon what actually occurs andadjustments will be made during biennialplan reviews.

[40 N.J.R. 5965(a), 5994 (Oct. 20,2008) (emphasis added).]

In response to a comment that N.J.A.C. 5:97-2.5(e)"would require . . . a municipality [to] provide for thenumber of affordable units projected by COAH . . . evenif the actual amount of residential and non-residentialdevelopment occurring in the town results in a lowerobligation than projected by COAH," COAH stated:

[COAH] will consider waivers to itsregulations pursuant to the waiver criteriaenumerated in N.J.A.C. 5:96-15. . . . Theprojection of growth share is to be used as

a planning tool to establish reasonabletargets. Municipalities will be required tozone or provide other mechanismspursuant to N.J.A.C. 5:97-6 in keepingwith their projections. The actualobligation will be determined based uponwhat actually occurs and adjustments willbe made during biennial plan reviews.

[Ibid. (emphasis added).]

Moreover, COAH has reaffirmed in its answeringbrief that "under growth share, the obligation to construct[affordable [*26] housing] does not arise unless and untilthe growth occurs[,]" and that a municipality only has tomeet its projected affordable housing obligation duringthe period of substantive certification "should the growthoccur." Therefore, even though, considered in isolation,N.J.A.C. 5:97-2.5(e) and N.J.A.C. 5:97-2.2(e) might seemto indicate that a municipality must provide for its full"projected growth share," Appendix A to N.J.A.C. 5:97and COAH's responses to public comments regarding theproposed revised third round rules indicate that COAHwill administer the rule in a manner that requiresmunicipalities to provide only their actual growth shareobligation.

We have no reason to doubt that COAH willadminister the third round rules in the manner it haspublicly indicated it will do. Moreover, if COAH fails tocarry through with its publicly stated intentions regardingthe administration of the revised third round growth sharemethodology, its denial of a municipality's application fora waiver of the obligation to provide for themunicipality's full projected growth share of affordablehousing undoubtedly would be appealed to this court onthat basis. Therefore, we conclude that the [*27] growthshare methodology for determining a municipality's shareof the prospective regional need for affordable housingset forth in the revised third round rules, like the growthshare methodology set forth in the original third roundrules, "permit[s] municipalities with substantial amountsof vacant developable land and access to jobopportunities in nearby municipalities to adopt masterplans and zoning ordinances that allow for little growth,and thereby a small fair share obligation," In re N.J.A.C.5:94, supra, 390 N.J. Super. at 56, 914 A.2d 348, and isthus invalid for the reasons set forth in our prior opinion.

5. Remedy for Declaration of Invalidity of "Growth

2010 N.J. Super. LEXIS 201, *23

Share" Methodology: Order Requiring COAH to UseMethodology Similar to Those Used to DetermineProspective Need in Prior Rounds

Our prior opinion concluded that "the growth shareapproach, as presently constituted, is inconsistent withboth the Mount Laurel doctrine as articulated by theSupreme Court and as codified in the FHA," supra, In reN.J.A.C. 5:94, 390 N.J. Super. at 53, 914 A.2d 348(emphasis added), but did not preclude COAH fromadopting another version of the growth sharemethodology that corrected the problems we identified inthe [*28] original version. Because we have nowconcluded that COAH's revised version of the growthshare methodology has the same basic deficiencies as theoriginal version, COAH must again adopt revised thirdround rules for determining the prospective need foraffordable housing.

At this point, we do not believe it would beappropriate to allow COAH to adopt yet anothermethodology for determining the allocation ofprospective need that uses a growth share approach. Morethan a decade has elapsed since expiration of the secondround rules, during which COAH has operated withoutvalid third round rules. This regulatory vacuum must befilled. The most reasonable means of achieving thisobjective is to require COAH to adopt third round rulesthat incorporate a methodology similar to themethodology set forth in the first and second round rules,which were approved by the courts in most respects.

Our conclusion that COAH should be required toreturn to such a previously-approved methodology toprevent further delay in the adoption of valid third roundrules is reinforced by our doubts whether any growthshare methodology would be valid under existing law. InMount Laurel II, the Court pointedly [*29] rejected anymethodology for determining allocations of municipalaffordable housing obligations that was substantiallydependent upon individual municipalities' decisions as towhether to grow:

While it would be simpler in these casesto calculate a municipality's fair share bydetermining its own probable futurepopulation (or some variant thereof), sucha method would not be consistent with theconstitutional obligation (although it is afactor that could be considered in a fair

share calculation in the absence of otherproof). Municipal population projectionsare based on many factors, but in no casethat we know of do they include a valuejudgment that such municipality shouldbear its fair share of the region's lowerincome housing need. In fact, in mostcases, we believe, one of the factorsnecessarily involved in such municipalpopulation projections is the prior andprobable future effect of the municipality'sexclusionary zoning. If, because of thatexclusionary zoning, a suburbanmunicipality with substantial developableland has a very, very small probablegrowth as shown by the most reliablepopulation projections (resulting in partfrom its very small past growth cased[*30] by exclusionary zoning), it shouldnot be allowed to evade its obligation bybasing its fair share of the lower incomehousing need on that small projectedpopulation growth. On the other hand,when that municipality is considered aspart of the region and the region'spopulation growth is projected, a valuejudgment is made, based upon the MountLaurel obligation, that may result in asubstantially greater fair share for thatmunicipality and indeed may have theeffect of changing what would otherwisebe the population projection for thatmunicipality.

[ 92 N.J. at 257-58, 456 A.2d 390. ]

We recognize that more than twenty-seven yearshave elapsed since the Court's decision in Mount LaurelII. It may be that the time has arrived for reconsiderationof the part of Mount Laurel II that appears to militateagainst the use of any growth share methodology fordetermining a municipality's affordable housingobligations. However, this court has no authority toundertake such reconsideration; we are bound by thedecisions of our Supreme Court.

Therefore, we are unwilling to allow COAH tofurther delay the discharge of its duty to adopt valid thirdround rules by undertaking to devise yet another

2010 N.J. Super. LEXIS 201, *27

methodology [*31] for allocating municipal obligationsfor the prospective need for affordable housing that reliesupon a growth share approach. Instead, we direct COAHto adopt new third round rules that use a methodology fordetermining prospective need similar to the ones used inthe first and second rounds.

6. Inappropriateness of Requiring COAH toContinue Use of Projected Statewide and RegionalProspective Need Determined Under Invalid RevisedThird Round Rules

We next consider the effect of our invalidation of therules governing allocation of prospective need based on agrowth share methodology upon COAH's determinationsof projected statewide and regional prospective need forthe period from 1999 to 2018. Fair Share suggests thateven though, as we have now held, the growth shareapproach is invalid as a methodology for allocatingprospective need to individual municipalities, COAH'sdetermination of the projected overall statewide andregional prospective need based on that methodologyshould be used in connection with any new revised thirdround rules. We reject this suggestion and conclude thatthere must be a new determination of overall statewideand regional prospective need based on a [*32]methodology similar to the methodologies used in thefirst and second round rules.

COAH's use of the same methodology to determineboth projected growth and actual growth shareobligations was apparently designed to establish anintegrated system for determination of projectedstatewide and regional prospective need, allocation ofthat need to individual municipalities, and satisfaction ofthe need through municipal compliance plans.Consequently, we cannot simply assume COAH wouldhave used this same methodology for determiningstatewide and regional prospective need if it had knownthat the portions of the third round rules dealing withprospective need would be declared invalid for use inallocating responsibility for satisfaction of that obligationto individual municipalities. Moreover, it wouldconstitute an unduly expansive exercise of judicial powerto require COAH to use prospective need numbers, whichwere generated as one component of an integratedmethodology we have invalidated, as a component of anew methodology, to be derived from the methodologiesused in the first and second round rules, which COAHwill now be required to adopt.

Our unwillingness to require COAH to [*33] use thestatewide and regional prospective need numbersgenerated by the methodology under which COAHdetermined projected statewide and regional growth forthe period from 1999 to 2018 in new revised third roundrules is reinforced by the substantial issues raised by theNational Association of Industrial and Office Propertiesand other appellants regarding the reasonableness of themethodology and reliability of the data COAH used incalculating projected statewide and regional growth.Those issues include the appropriateness of the projectednew jobs component, COAH's failure to compare the datait used to calculate prospective need with other availabledata, the appropriateness of including demolitions ofresidential units for the purpose of rebuilding incalculating growth share, and the reasonableness ofCOAH's projections of both housing and job growthbased on stale data.

We have no need in deciding these appeals to ruleupon these or any of the other issues appellants raiseconcerning COAH's projected statewide and regionalprospective need calculations. We only note that some ofthese issues are substantial and could have resulted ininvalidation of the prospective need components [*34] ofthe third round rules even if the growth sharemethodology had been found to be valid. Furthermore,the data COAH used in calculating prospective need hasbecome even more stale during the more than two-yearperiod these appeals have been pending.

Therefore, we direct COAH, in devising new revisedthird round rules, to redetermine prospective need basedon a methodology similar to the ones used in the first andsecond round rules and up-to-date data.

7. Invalidating N.J.A.C. 5:97-3.2(a)(4)(iv), WhichAuthorizes Substantive Certification of Compliance Plansthat Rely Upon Municipality-Sponsored AffordableHousing Projects Without Specifying Location of Sites orSource of Funding

Several appellants argue that a municipality mayobtain substantive certification under N.J.A.C.5:97-3.2(a)(4)(iv), based on a compliance plan thatproposes to satisfy some or all of its affordable housingobligations by municipally-sponsored 100% affordablehousing projects, without any specifics or supportingdocumentation, such as the location of the project,evidence the municipality controls the site, suitability ofthe site, source of funds to construct and operate the

2010 N.J. Super. LEXIS 201, *30

project, or the identity of the [*35] entities that willconstruct and operate the project. These appellants arguethat the grant of substantive certification based on such acompliance plan would violate the FHA, which requiresCOAH to find, before granting substantive certification,that a plan makes it "realistically possible" for amunicipality to satisfy its affordable housing obligations.N.J.S.A. 52:27D-314(b).

COAH's sole justification for authorizing the grant ofsubstantive certification based on such an amorphousplan for satisfaction of a municipality's affordablehousing obligations is that "under [its] growth share[methodology], the obligation to construct does not ariseunless and until the growth occurs," and thereforeN.J.A.C. 5:97-3.2(a)(4)(iv) "was designed to address thelimited area of 100% affordable housing programs, andthe issue of the possible expenditure of municipal funds,by not requiring that a site be identified or a fundingcommitment be made if actual growth is not occurring."Thus, COAH's justification for N.J.A.C.5:97-3.2(a)(4)(iv) is wholly dependent upon the validityof the growth share methodology for determiningprospective need. We have concluded for the reasons setforth in section [*36] four of this opinion that thatmethodology is invalid. It follows that N.J.A.C.5:97-3.2(a)(4)(iv) is also invalid.

8. Invalidating Parts of Revised Third Round Rulesthat Do Not Provide Sufficient Incentives for Developersto Construct Inclusionary Development

Another of the primary grounds upon which weinvalidated substantial parts of COAH's original thirdround rules was that those rules, specifically N.J.A.C.5:94-4.4, compelled developers to provide affordablehousing without any compensating benefit. In re N.J.A.C.5:94, supra, 390 N.J. Super. at 67-75, 914 A.2d 348. Inconcluding that N.J.A.C. 5:94-4.4 was invalid, we stated:

We conclude that the Mount Laureldoctrine, as articulated in Mount Laurel IIand Toll Bros., 5 and as codified by theFHA, requires municipalities to provideincentives to developers to constructaffordable housing. Land use ordinancesrequiring all developers to provide someaffordable housing conflict with theessence of the Mount Laurel doctrine,which requires that municipal land use

ordinances create a realistic opportunity.N.J.A.C. 5:94-4.4 discouragesdevelopment, even in growth areas wheredevelopment is supposed to occur becauseit makes development both more [*37]expensive and less predictable. The rulesallow municipalities in growth areas todiscourage development of any kind, andtherefore the development of anyaffordable housing, by zoning selectedareas for uncompensated inclusionarydevelopment . . . .

History has shown that manymunicipalities believe that it is in theirbest financial interest to exclude low- andmoderate-income households, especiallyhouseholds with children. Permittingmunicipalities to demand that developersbuild affordable housing without anyadditional incentives providesmunicipalities with an effective tool toexclude the poor by combining anaffordable housing requirement withlarge-lot zoning . . . . A regulatory regimethat relies on developers to incur theuncompensated expense of providingaffordable housing is unlikely to result inmunicipal zoning ordinances that make itrealistically probable that the statewideneed for affordable housing can be met.

[Id. at 73-74, 914 A.2d 348 (citationsomitted).]

5 Toll Bros. v. Twp. of West Windsor, 173 N.J.502, 803 A.2d 53 (2002).

Since the issuance of our prior opinion, theLegislature has expressly recognized the need for amunicipality to provide incentives to residentialdevelopers for the [*38] construction of affordablehousing, including increased densities. In 2008, theLegislature enacted a new subsection of the FHA, whichstates:

Whenever affordable housing units areproposed to be provided through aninclusionary development, a municipality

2010 N.J. Super. LEXIS 201, *34

shall provide, through its zoning powers,incentives to the developer, which shallinclude increased densities and reducedcosts, in accordance with the regulationsof the council and this subsection.

[N.J.S.A. 52:27D-311(h).]

COAH contends that it satisfied the requirement ofour prior opinion and N.J.S.A. 52:27-311(h) to provideadequate incentives for the construction of affordablehousing by adopting N.J.A.C. 5:97-6.4(a), whichprovides in pertinent part:

Affordable housing units proposedthrough inclusionary development shall beprovided through zoning for developmentthat includes a financial incentive toproduce the affordable housing, includingbut not limited to increased densities andreduced costs to the developer.

However, N.J.A.C. 5:97-6.4(b)(3)(i) provides that COAH"shall generally accept" municipal zoning as satisfyingthe requirement of "providing a realistic opportunity forthe creation of affordable housing" if the [*39] zoning"provides for the presumptive densities and set-asides"set forth in the various subsections of N.J.A.C.5:97-6.4(b)(2). Therefore, the determination of whetherthe third round rules provide adequate incentives todevelopers to construct affordable housing depends onthe reasonableness of those presumptive densities andset-asides.

In Planning Area 1, COAH requires a presumptiveminimum gross density of eight units per acre and apresumptive maximum set-aside of 25%. N.J.A.C.5:97-6.4(b)(2)(i). In Planning Area 2 and designatedcenters, COAH requires a presumptive minimum grossdensity of six units per acre and a presumptive maximum25% set-aside. N.J.A.C. 5:97-6.4(b)(2)(ii). In PlanningAreas outside of Planning Areas 1 and 2, COAH requiresa presumptive minimum gross density of four units peracre and a presumptive maximum set-aside of 25%.N.J.A.C. 5:97-6.4(b)(2)(iii). COAH also requiresspecified minimum gross densities and presumptivemaximum set-asides in areas that do not have sewerservice and urban centers. N.J.A.C. 5:97-6.4(b)(2)(iv),(v).In addition, if a developer proposes to construct rental

housing, COAH requires a presumptive minimum densityof twelve units per [*40] acre and a presumptivemaximum affordable housing set-aside of 20%. N.J.A.C.5:97-6.4(b)(6)(i).

There is no basis in the reports of COAH's outsideconsultants or prior experience in the administration ofthe Mount Laurel doctrine for concluding that COAH'srevised third round rules provide sufficient incentives fordevelopers to construct residential developments at thepresumptive minimum densities and maximumset-asides. Where the presumptive minimum densitiesrequired by the revised third round rules do not exceedthe densities permitted under existing zoning, theyobviously provide no incentive for construction ofaffordable housing. Furthermore, even where thepresumptive minimum densities exceed the densitiespermitted under existing zoning, they do not requiremunicipalities to permit the kind of high densityresidential development ordinarily required to establishthe financial feasibility of developers constructing asignificant amount of affordable housing. Thepresumptive minimum gross density of eight units peracre applies only in Planning Area 1, N.J.A.C.5:97-6.4(b)(2)(i), which covers the State's most urbanizedcommunities. See In re Coastal Permit Program Rules,354 N.J. Super. 293, 321, 807 A.2d 198 (App. Div. 2002).[*41] A presumptive minimum gross density of six unitsper acre applies in Planning Area 2, N.J.A.C.5:97-6.4(b)(2)(ii), and a presumptive minimum grossdensity of merely four units per acre is required in thesewered sections of Planning Areas 3, 4 and 5. N.J.A.C.5:97-6.4(b)(2)(iii). Moreover, a municipality is onlyrequired to permit attached single family housing when"necessary to accommodate" these densities. N.J.A.C.5:97-6.4(b)(4). Thus, in parts of the State, a municipalitymay satisfy its affordable housing obligations by zoningonly for detached single-family houses on quarter-acrelots, which is an expensive form of residentialdevelopment even if the affordable units are modest insize.

Moreover, the revised third round regulationsauthorize a municipality to require developers to providea 25% set-aside of affordable housing in those parts ofthe State. This would mean a municipality could require adeveloper planning to construct eighty residential unitson quarter-acre lots to include twenty units of affordablehousing in its development. In addition, the revised thirdround rules require a development's affordable units to be

2010 N.J. Super. LEXIS 201, *38

priced at a level that, on average, will be affordable[*42] to a household earning 55% of the regional medianhousehold income, N.J.A.C. 5:97-9.1(a) (incorporatingaffordability standards of N.J.A.C. 5:80-26.3(e)), which isa reduction from the previous standard of 57.5% ofregional median household income. N.J.A.C. 5:93-7.4(b).

We take judicial notice of the fact that a 20%set-aside requirement has been considered the norm in theadministration of the Mount Laurel doctrine and thatexperts in the field have expressed skepticism whetherdevelopers will be motivated to construct residentialdevelopments with affordable housing set-asiderequirements any higher than 20%, except perhaps in afew municipalities where market-rate units can commandpremium prices. See Urban League of Essex County v.Twp. of Mahwah, 207 N.J. Super. 169, 204-06, 504 A.2d66 (Law Div. 1984). Current economic conditions andregulatory requirements for new housing constructionmake it even more unlikely than in the past thatmunicipal zoning requiring more than 20% of newresidential units to be affordable to lower incomehouseholds would provide a realistic opportunity forconstruction of a substantial number of such units.

In response to the Builders Association's objectionsthat [*43] the minimum densities and maximumset-asides required by the proposed revised third roundrules were not economically feasible, COAH citedMassachusetts as an example of a jurisdiction thatrequires 25% set-asides. Response to Comment onN.J.A.C. 5:97-6.4, 40 N.J.R. 5965(a), 6014 (Oct. 20,2008). However, as COAH's housing consultant noted,the Massachusetts program is not comparable to NewJersey's affordable housing requirements under the MountLaurel doctrine and the FHA, because Massachusettsonly requires units to be affordable to moderate incomehouseholds (those with incomes at or below 80% of theregional median income), and not, as in New Jersey, alsolow income households (those with income at or below50% of regional median income). N.J.A.C. 5:97, App. F:Inclusionary Housing: Lessons from the NationalExperience, 40 N.J.R. 2690(a), 3078-79 (June 2, 2008).

In response to the Builders Association's objections,COAH also suggested that a developer which claims thatresidential development is not economically feasible atthe densities and set-asides prescribed by the third roundrules can apply to COAH for a waiver of those standards.Response to Comment on N.J.A.C. 5:97-6.4, [*44] 40

N.J.R. 5965(a), 6014 (Oct. 20, 2008). However, COAH'sown housing consultant recommended against such aproject-by-project determination of the permitteddensities and required percentages of affordable units:

Inclusionary housing programs functionbest when they have a clear andpredictable affordable housingrequirement that market actors can takeinto account when they buy land andchoose whether to invest funds in a deal.

[N.J.A.C. 5:97, App. F: InclusionaryHousing: Lessons from the NationalExperience, 40 N.J.R. 3088 (June 2,2008).]

Our courts have also recognized the need for "bright linestandards" for determining the obligations ofmunicipalities under the Mount Laurel doctrine. See J.W.Field Co. v. Twp. of Franklin, 204 N.J. Super. 445,452-53, 499 A.2d 251 (Law Div. 1985). The inclusion inthe third round rules of presumptive minimum grossdensities and presumptive maximum set-asides that donot appear to create a realistic opportunity for theconstruction of affordable housing in most circumstances,and consequently would require frequent resort to awaiver procedure, do not provide such workable "brightline standards."

Therefore, we conclude that the revised third roundrules, like [*45] the original third round rules, do notprovide sufficient incentives for the construction ofinclusionary developments to create a realisticopportunity for any substantial amount of affordablehousing.

9. Invalidating N.J.A.C. 5:97-3.5, Which AuthorizesRental

Bonus Credits for Prior Round Obligations

SJM Communities argues that N.J.A.C. 5:97-3.5, asamended in October 2008, violates the Mount Laureldoctrine by authorizing municipalities to reduce theirprior round affordable housing obligations through theaward of rental bonus credits for rental units that werenever built.

In its original form as adopted in June 2008, N.J.A.C.5:97-3.5(a) provided in pertinent part:

2010 N.J. Super. LEXIS 201, *41

A municipality may receive two units ofcredit for each rental unit addressing itsprior round rental obligation, provided theunit was created in the municipality andoccupied on or after December 15, 1986,is not age-restricted and has controls onaffordability for at least 30 years.

[40 N.J.R. 2690(a), 2893 (June 2,2008).]

In addition, N.J.A.C. 5:97-3.5(b) provided for the awardof 1.33 units of credit for age-restricted affordable rentalunits, subject to the same conditions. Ibid. Thus, underthis original form of N.J.A.C. 5:97-3.5, [*46] amunicipality was only entitled to rental bonus credits foraffordable rental units that had been actually "created inthe municipality."

However, the amendments to the revised third roundrules COAH adopted in October 2008 included a newversion of N.J.A.C. 5:97-3.5, which eliminated therequirement that an affordable rental unit must have beenactually created for a municipality to be entitled to arental bonus. In its amended form, N.J.A.C. 5:97-3.5(a)provides in pertinent part:

A municipality may receive two units ofcredit for each rental unit addressing itsprior round rental obligation, provided theunit was or will be created and occupiedin the municipality or receivedpreliminary or final approval, on or afterDecember 15, 1986, is not age-restrictedand has controls on affordability for atleast 30 years.

[40 N.J.R. 5965(a), 6057 (Oct. 20,2008) (emphasis added).]

N.J.A.C. 5:97-3.5(b), which provides a 1.33 rental bonuscredit for age-restricted rental units, was also amended toeliminate the requirement that a unit must have beenactually created for a municipality to obtain a rentalbonus credit. Ibid. Thus, under the amended version ofN.J.A.C. 5:97-3.5, a municipality [*47] may be entitledto a rental bonus credit for its prior round affordablehousing obligations for the period from 1986 to 1999even though a proposed rental unit was not constructed

within that period or the period of COAH's substantivecertification of the municipality's plan for compliancewith those prior round obligations.

COAH's prior round rules only allowed rental bonuscredits for affordable rental units that were constructedwithin a reasonable period. N.J.A.C. 5:93-5.15(d), whichgoverned rental bonus credits in the second round, statesin relevant part:

[COAH] shall grant a rental bonus forrental units that are constructed . . . .[COAH] may also grant the rental bonusprior to construction when it determinesthat the municipality has provided orreceived a firm commitment for theconstruction of rental units. Amunicipality may lose the benefit of therental bonus granted in advance of theactual construction of the rental units if themunicipality has not constructed the rentalunits within the time periods establishedas a condition of substantive certification;or granted preliminary or final approvalfor the construction of the rental units(where a developer agreed to [*48]construct the rental units). A municipalitymay also lose the benefit of a rental bonusif the preliminary or final approval is nolonger valid or if the developer hasabandoned the development.

Although this rule allowed a municipality to claim creditfor an affordable rental unit that had not yet been built, italso provided that the credit would be lost if the unit wasnot constructed within the period established as acondition of substantive certification. N.J.A.C. 5:97-3.5,as amended in October 2008, contains no comparablelimitation upon the effective period of a rental bonuscredit. Thus, under N.J.A.C. 5:97-3.5, a rental bonuscredit against prior round obligations can continueindefinitely without the proposed affordable rental unitactually being constructed.

The rationale under which the validity of rentalbonus credits have been upheld, even though theydecrease the total number of affordable housing units thatare created, is to "encourag[e] the construction of morerental housing." In re N.J.A.C. 5:94, supra, 390 N.J.Super. at 82, 914 A.2d 348. This salutary objective is not

2010 N.J. Super. LEXIS 201, *45

served by allowing a municipality to claim a rental bonuscredit for a planned affordable rental unit that [*49] stillhas not been constructed more than a decade afterexpiration of the prior round periods for which amunicipality has unmet affordable housing obligations.Therefore, N.J.A.C. 5:97-3.5 is invalid.

10. Upholding N.J.A.C. 5:97-3.18 and -3.19, WhichAuthorize "Smart Growth" and "Redevelopment" Bonuses

Fair Share challenges the validity of the revised thirdround rules that allow new forms of "bonuses" to achievecompliance with municipal affordable housingobligations. One is a "Smart Growth" bonus, whichawards municipalities "1.33 units of credit for eachaffordable housing unit addressing its growth shareobligation . . . that is included in a Transit OrientedDevelopment in a Planning Area 1, 2 or a designatedcenter," N.J.A.C. 5:97-3.18; and another is a"Redevelopment" bonus, which awards municipalities"1.33 units of credit for each affordable housing unitaddressing its growth share obligation . . . that is includedin a designated redevelopment area or rehabilitation areapursuant to the Local Redevelopment and Housing Law,N.J.S.A. 40A:12A-1 et seq . . . ." N.J.A.C. 5:97-3.19.

We have previously upheld the validity of the formsof bonuses COAH authorized in its prior round [*50] andoriginal third round rules. In Calton Homes, supra, 244N.J. Super. at 456-58, 582 A.2d 1024, we upheld thevalidity of a rule providing bonus credits for affordablerental units. We described the rental bonus rule as areasonable device "to encourage construction of rentalhousing." Id. at 457, 582 A.2d 1024. We also observed:

[COAH] is granted wide discretion indetermining how to carry out the essentialpurpose of the [FHA], which is thecreation of a variety of affordable housing,including rental housing. Because therental bonus is a reasonable component ofa scheme reasonably designed to serve theLegislature's purpose it should besustained.

[Id. at 458, 582 A.2d 1024 (citationsomitted).]

In In re N.J.A.C. 5:94, supra, 390 N.J. Super., at81-84, 914 A.2d 348, we affirmed the validity of the

rental bonus rule included in the original third round rulesand a new bonus credit for residential units that areaffordable to very poor households, which are defined ashouseholds earning 30% or less of median income. Inupholding the award of bonus credits for residencesaffordable to such households, we stated: "If it isreasonable to award bonus credits for rental units tooffset the increased subsidies necessary to create morerental housing [*51] in the State, then it is equallyreasonable for COAH to provide incentives for housingfor the very poor." Id. at 83, 914 A.2d 348.

The revised third round rules also provide bonuscredits for affordable rental units and residential unitsaffordable to the very poor. N.J.A.C. 5:97-3.5, 3.6, 3.7.We have invalidated the amended version of N.J.A.C.5:93-3.5, which governs rental bonuses for prior roundobligations, for the reasons set forth in section nine ofthis opinion. However, no party challenges N.J.A.C.5:97-3.6, which governs rental bonuses for thesatisfaction of prospective need, or N.J.A.C. 5:97-3.7,which governs bonuses for construction of affordablehousing for very low income households. Fair Share'schallenge is limited to the new forms of bonusesauthorized by the revised rules.

The "Smart Growth" bonus provided by N.J.A.C.5:97-3.18 may only be claimed for affordable unitsconstructed "in a Transit Oriented Development inPlanning Area 1, 2 or a designated center." The evidentpurpose of this bonus is to encourage construction ofaffordable housing in areas designated as most desirablefor development in the State Development andRedevelopment Plan adopted by the State PlanningCommission [*52] pursuant to the State Planning Act,N.J.S.A. 52:18A-196 to -207, specifically N.J.S.A.52:18A-199(a), -200, -202.

The "Redevelopment" bonus provided by N.J.A.C.5:97-3.19 may be claimed only for affordable unitsconstructed in a "designated redevelopment area orrehabilitation area pursuant to the Local Redevelopmentand Housing Law, N.J.S.A. 40A:12A-1 et seq . . . ." Theevident purpose of this bonus is to encourageconstruction of affordable housing as part of anyredevelopment plan.

The FHA expressly directs COAH, in performing itsstatutory duties, to "give appropriate weight to . . .implementation of the State Development andRedevelopment Plan prepared pursuant to [N.J.S.A.

2010 N.J. Super. LEXIS 201, *48

52:18A-196 to -207]." N.J.S.A. 52:27D-307(e). Inaddition, the FHA states that "[s]ince the urban areas arevitally important to the State, construction, conversionand rehabilitation of housing in our urban centers shouldbe encouraged." N.J.S.A. 52:27D-302(g). Theselegislative policies are promoted by the third round rulesproviding for "Smart Growth" and "Redevelopment"bonuses. Therefore, we conclude that those rules, like therules providing bonuses for affordable rental units andresidential units affordable [*53] to very poorhouseholds that we upheld in Calton Homes and In reN.J.A.C. 5:94, are reasonably designed to furtherimportant state policies and are therefore valid.

11. Invalidating N.J.A.C. 5:97-3.17, WhichAuthorizes "Compliance" Bonuses

Fair Share also challenges the validity of a revisedthird round rule that establishes another new form ofbonus called a "Compliance" bonus. The rule authorizingthis bonus provides in pertinent part:

(a) A municipality may receive two unitsof credit for each affordable housing unitthat has been included in a developmentthat received preliminary or final approval,or was the subject of an executeddeveloper's agreement or redevelopmentagreement, between December 20, 2004and June 2, 2008 when:

1. The zoning ordinance authorizingthe development . . . was included as anaffordable housing mechanism to addressthe growth share obligation in a thirdround petition for substantive certificationsubmitted to Council prior to January 25,2007, pursuant to N.J.A.C. 5.95; [and]

2. The development approval orexecuted developer's agreement orredevelopment agreement provides for theaffordable housing units to be built on site. . . .

[N.J.A.C. 5:97-3.17.]

Thus, [*54] the prerequisite for the award of a bonusunder this rule is not a form of development thatpromotes an important public policy, such as construction

of rental units, housing affordable to very low incomehouseholds, or housing in areas that have beenspecifically designated for growth in the State Plan, butsolely the circumstance of a preliminary or finaldevelopment approval or execution of a development orredevelopment agreement during the period fromDecember 20, 2004 to June 2, 2008, which was theinterim period between the adoption of the original andrevised third round rules.

The sole justification COAH offers for this bonus isthat municipalities reasonably relied upon the originalthird round rules. We have no doubt municipalitiesshould not be penalized for relying upon the originalrules that we subsequently invalidated. However, anysuch penalty can be avoided simply by givingmunicipalities the same credit they would have receivedif we had upheld the validity of the original rules, whichwould be a single credit for each unit constructed orapproved, rather than the double credit provided byN.J.A.C. 5:97-3.17. Therefore, we invalidate N.J.A.C.5:97-3.17.

12. [*55] Upholding COAH's Determination ofPrior Round Affordable Housing Obligations

Under the original third round rules, COAHincreased prior round obligations based on data from the2000 census, which showed that there had been greaterhousehold growth during the second round period from1993 to 1999 than had been projected when theobligations for that period were established, but reducedthose increased obligations based on filtering and othersecondary sources of affordable housing. In re N.J.A.C.5:94, supra,390 N.J. Super. at 45, 914 A.2d 348. Weinvalidated this methodology for determining prior roundobligations on the ground that the reductions for filteringrested on "inadequate data." Id. at 46, 914 A.2d 348.

On remand, COAH decided simply to impose thesame prior round obligations it had established as thesecond round obligations in 1993, without either anyincrease for the greater than projected growth during thesecond round period or any reduction for filtering andother secondary sources. See 40 N.J.R. 2690(a), 2862(June 2, 2008). The prior round obligations determined inthis manner are set forth in Appendix C to N.J.A.C. 5:97.

Fair Share argues that COAH's abandonment of themethodology for determining prior [*56] roundobligations provided in the original third round rules is

2010 N.J. Super. LEXIS 201, *52

inconsistent with our prior opinion. However, thatopinion did not direct COAH to retain the samemethodology for determining prior round obligations. Itonly held that if COAH used a methodology thatinvolved a reduction in prior round obligations based onfiltering or other secondary sources, it was required to use"the most recent and reliable data available to theagency" in determining such reductions. In re N.J.A.C.5:94, supra, 390 N.J. Super. at 46, 914 A.2d 348.Therefore, COAH's adoption of a new methodology fordetermining prior round obligations did not violate themandate of our remand.

Fair Share and ISP also argue that the methodologyused to determine prior round obligations in the revisedthird round rules is arbitrary, capricious, andunreasonable, because it fails to reflect the greater thanprojected household growth during the 1993-99 secondround period. Fair Share and ISP point out that incalculating prior round obligations in the second roundrules, COAH reduced those obligations to reflect the lessthan projected growth during the first round period from1987 to 1993, and they argue that COAH was required to[*57] make the same kind of adjustment when growthwas greater than projected during the 1993-99 secondround period.

COAH provided the following explanation forestablishing the same affordable housing obligations ithad established in 1993 as municipalities' second roundobligations as the prior round component of third roundaffordable housing obligations:

The prior round numbers in Appendix Care the unadjusted 1987-99 obligation,first published in 1993. [COAH] made apolicy decision not to update the priorround numbers for two main reasons.First, [COAH] recognizes that for towns toparticipate and proactively produceaffordable housing, there needs to bepredictability in the process and the townsmust be able [to] rely on their substantivecertification. By going back to theunadjusted 1993 number, some towns'prior round obligations have increased andothers have decreased. Also, the growthshare ratios have increased sosubstantially, that there is a point at whicha municipality will never be able to "catch

up" and construct such a large amount ofaffordable housing.

[40 N.J.R. 2690(a), 2860 (June 2,2008).]

The Supreme Court has repeatedly indicated thatcourts should extend substantial [*58] deference toCOAH's determinations of municipal affordable housingobligations. See, e.g., In re Twp. of Warren, supra, 132N.J. at 27, 622 A.2d 1257; Van Dalen v. WashingtonTwp., 120 N.J. 234, 244-46, 576 A.2d 819 (1990).

We consider it appropriate to extend such deferenceto COAH's determination that the second roundaffordable housing obligations established in 1993 shouldbe used as the prior round component of affordablehousing obligations under the revised third round rules.COAH's rationale of providing municipalities withpredictability and the ability to rely upon COAH'ssubstantive certifications of their prior round complianceplans constitutes a reasonable basis for this part of thethird round rules. We also note that the use of unadjustedsecond round affordable housing obligations as the priorround component of the third round obligations results intotal prior round obligations of 85,964 units, which is8,437 more units than the total generated by themethodology used to determine prior round obligations inthe original third round rules. For these reasons, we rejectFair Share's challenge to the validity of COAH'sdetermination of prior round obligations.

13. Upholding COAH's Determination Not [*59] toReallocate Present Need for Affordable Housing inUrban Municipalities to Other Municipalities

Fair Share challenges the part of the revised thirdround rules that fails to reallocate any of the present needfor affordable housing created by substandard housing inurban municipalities to other municipalities in the region.

This is essentially the same challenge Fair Sharemade to this part of the original third round rules. Inrejecting that challenge, we stated:

In adopting the third round rules, COAHcharacterized reallocated present need asthe "replacement of a primarily urbanrehabilitation obligation with a primarilysuburban New Construction Obligation."

2010 N.J. Super. LEXIS 201, *56

36 N.J.R. 5790 (December 20, 2004).COAH identified two undesirable resultscreated by the round one and round twomethodology: (1) it substantially increasedthe new construction obligation of manymunicipalities that had their ownsubstantial rehabilitation obligations; and(2) older, suburban communities that werealready built up were assigned asubstantial new construction obligationthat could not be met; municipalitieslacking vacant land could not develop a"realistic" fair share plan because the newconstruction obligation [*60] could notrealistically be satisfied without any landto build new housing. Ibid. COAH alsoestimated that housing need in the innercities was slightly below what it was inround two, and COAH would also requirethat vacant rental rehabilitation units beaffirmatively marketed within the region.Ibid.

We conclude that the Mount Laureldoctrine does not necessarily requireCOAH to allocate excess housing needexisting in the inner cities to suburbanmunicipalities. Not only does theregulation of any administrative agencycarry a presumption of validity, but theCourt has signaled its intent to allowCOAH broad discretion in implementingthe Mount Laurel doctrine. . . .

This court should defer to COAH'sexperience in administering the round oneand round two rules, which show thatreallocating present need was not apractical solution to the lack of affordablehousing in suburban growth areas because:(1) so many suburbs already had toaddress significant housing deterioration,and (2) so much of the reallocated presentneed was assigned to suburbanmunicipalities that lacked sufficient vacantdevelopable land. The Court has stated:"Revisions, adjustments, fine tuning-all ofthe techniques [*61] available to anadministrative agency-can be implementedon a statewide basis as experience teaches

[COAH] what works and what does not."[Hills, supra, 103 N.J. at 37, 510 A.2d621] . . . . If, as COAH predicts, a growthshare approach will actually result in theconstruction of more affordable housing,then we do not believe that excess presentneed in urban municipalities must bereallocated to other municipalities.

We disagree with appellants thateliminating reallocated present needunfairly burdens inner cities. If most of thenew jobs and new housing in the State donot occur in distressed inner cities, thenaffirmatively marketing the housing thatdoes become available in suburban growthareas will not require cities to tax theirlimited sources by providing affordablehousing. If, on the other hand, job growthand new housing development does takeplace in the inner cities, then thosemunicipalities will have greater resourcesto meet the housing needs of the poor.

[In re N.J.A.C. 5:94, supra, 390 N.J.Super. at 59-60, 914 A.2d 348.]

Fair Share argues that we should reconsider the partof our prior opinion that rejected its challenge to COAH'sfailure to reallocate any of the present need for affordable[*62] housing in urban municipalities, primarily becauseCOAH has now determined that present need is doublewhat it had been determined to be in the original thirdround rules. Despite this reassessment of the magnitudeof present need, we reaffirm the validity of the part of thethird round rules that does not reallocate any of that need.However, for the guidance of COAH on remand, we notethat the magnitude of urban municipalities' obligationsfor the present need for affordable housing due toexisting substandard housing creates substantial doubtwhether it is appropriate to assign any share of theresponsibility for prospective need to thosemunicipalities.

14. Rejecting Argument that Third Round RulesImproperly Require Expenditure of Municipal Revenuesto Satisfy Affordable Housing Obligations

The League and a number of municipal appellantsargue that the third round rules impermissibly require

2010 N.J. Super. LEXIS 201, *59

municipalities to expend municipal revenues to satisfytheir affordable housing obligations. This argument isbased upon N.J.S.A. 52:27D-311(d), which provides:"Nothing in [the FHA] shall require a municipality toraise or expend municipal revenues in order to providelow and moderate income [*63] housing." The Leagueand municipal appellants contend that the construction ofboth market-rate and affordable housing units ininclusionary developments will generate substantialadditional demand for municipal services, including trashcollection, road maintenance, public safety, and inparticular, schools, and that the real estate taxes imposedupon owners of new units in inclusionary developmentscannot reasonably be expected to fully offset the costs ofthose additional services. These appellants argue that thedifference between the cost of the additional municipalservices that will be generated as a result of constructionof inclusionary developments and the additional taxesthat will be paid by residents of those developmentsviolates the prohibition of N.J.S.A. 52:27D-311(d) againstrequiring "a municipality to raise or expend municipalrevenues in order to provide low and moderate incomehousing."

We conclude that any incidental impacts ofinclusionary housing developments upon municipalfinances does not constitute a mandated expenditure ofmunicipal revenues prohibited by N.J.S.A.52:27D-311(d). Almost all residential developments,except those involving very high-end residences, [*64]impose greater costs upon the host municipality,particularly school costs, than the additional tax revenuesgenerated by the residences, regardless of whether thedevelopment is inclusionary. Indeed, this is the reasonmany municipalities seek to maximize commercial andminimize residential development.

It was well recognized before enactment of the FHAthat the primary device for municipalities to satisfy theiraffordable housing obligations was the adoption ofzoning that provides a realistic opportunity forconstruction of new housing in inclusionarydevelopments. See Mount Laurel II, supra, 92 N.J. at265-74, 456 A.2d 390. However, if the prohibition ofN.J.S.A. 52:27D-311(d) against the mandated expenditureof municipal revenues were construed to extend to anyadverse fiscal impact of an inclusionary development, itwould effectively negate the use of zoning for suchdevelopment as a device for achieving compliance withaffordable housing obligations. In that event, the FHA

would no longer provide an administrative framework forachieving compliance with those obligations, but wouldinstead establish legislative authorization for failing tosatisfy affordable housing obligations, which would[*65] violate the New Jersey Constitution as interpretedin the Mount Laurel decisions.

However, a statute should not be given aconstruction that would raise doubts concerning itsconstitutionality if it is reasonably susceptible to aconstruction that would not raise such doubts. GallenthinRealty Dev., Inc. v. Borough of Paulsboro, 191 N.J. 344,359-60, 924 A.2d 447 (2007). We are satisfied thatN.J.S.A. 52:27D-311(d) can be reasonably construed onlyto prohibit any requirement that a municipality directlyexpend its revenues to provide affordable housing.Therefore, we adopt this construction of N.J.S.A.52:27D-311(d) to preserve its constitutionality.

It was well established before enactment of the FHAthat municipalities could voluntarily choose to satisfypart or all of their affordable housing obligations bymeans of subsidized lower-income housing projects andother devices that involve direct expenditures ofmunicipal funds, rather than by inclusionary zoning. SeeMount Laurel II, supra, 92 N.J. at 262-65, 456 A.2d 390.The FHA established another device by whichmunicipalities could satisfy part of their affordablehousing obligations by direct expenditure of municipalfunds, which was the authorization for [*66] amunicipality to enter into a regional contributionagreement, under which the municipality could satisfy upto 50% of its affordable housing obligation by payment toanother municipality of the funds required to constructaffordable housing in that municipality. See N.J.S.A.52:27D-312. 6

6 We note that the Legislature amended the FHAin 2008 to prohibit regional contributionagreements, effective July 17, 2008, by theenactment of N.J.S.A. 52:27D-329.6. L. 2008, c.46, § 12.

The FHA expressly authorized municipalities toexpend their revenues for subsidized affordable housingeither within their own borders or, through regionalcontribution agreements, in other municipalities, byproviding in N.J.S.A. 52:27D-302(h) that municipalities"are encouraged but not mandated to expend their ownresources to help provide low and moderate incomehousing." Thus, N.J.S.A. 52:27D-311(d) can be

2010 N.J. Super. LEXIS 201, *62

reasonably construed simply to indicate that theauthorization that N.J.S.A. 52:27D-302(h) provides forthe direct expenditure of municipal revenues to provideaffordable housing is purely voluntary and that anymunicipality that chooses not to make such expenditurescannot be compelled to do so.

Some municipal [*67] appellants argue that theycannot comply with their affordable housing obligationssolely by zoning for inclusionary developments becausethey do not have sufficient vacant land or sewer or watercapacity for such developments and therefore the directexpenditure of municipal revenue represents the onlymeans by which they can satisfy those obligations.However, any municipality in this position may petitionCOAH for an adjustment of its affordable housingobligations on that basis, see N.J.A.C. 5:97-5.6, and if thepetition is denied, the municipality may seek review bythis court.

For these reasons, the revised third round rules donot violate N.J.S.A. 52:27D-311(d).

15. Rejecting Arguments that Third Round Ruleswere not Adopted in Conformity with AdministrativeProcedure Act

Several appellants argue that the revised third roundrules should be invalidated because they were notadopted in conformity with the Administrative ProcedureAct (APA), N.J.S.A. 52:14B-1 to -15.

The Twenty Municipalities, joined by various othermunicipalities, argue that the rules should be invalidatedbecause COAH failed to prepare an adequate economicimpact statement. Such a statement is required byN.J.S.A. 52:14B-4(a)(2), [*68] which provides that whena state agency gives notice of a proposed rule, it alsomust issue a statement containing various information,including "a description of the expected socio-economicimpact of the rule." The Office of Administrative Law(OAL) has implemented this statutory requirement byadoption of an administrative rule, which requires anagency proposing adoption of a rule to provide "[a]neconomic impact statement which describes the expectedcosts, revenues, and other economic impacts upongovernmental bodies of the State, and particularly anysegments of the public proposed to be regulated."N.J.A.C. 1:30-5.1(c)(3).

When COAH proposed the revised third round rules,

it issued a socio-economic impact statement, which statedin part:

Approximately 40 percent of thepopulation of New Jersey resides in whatcan be considered low or moderate incomehouseholds. The benefit to theseindividuals, and to their communities, hasbeen significant. While the municipalitiesinvolved incur costs associated with theapplication of [COAH's] rules, such asprofessional fees required in thepreparation of a Housing Element and FairShare Plan prepared in accordance with[COAH's] rules, such [*69] costs may bedefrayed through the collection ofdevelopment fees. The proposed increasein the maximum development feepercentages and option for a tiered feeschedule will have a meaningful benefit infunding additional affordable housing thatoutweighs the costs. The maximumpermitted residential development feepercentage has been increased from onepercent of equalized assessed value to oneand one-half percent. The maximumpermitted non-residential development feepercentage has been increased from twopercent of equalized assessed value tothree percent.

Municipal inclusionary zoningordinances are now required to offer aminimum financial incentive, in the formof a density bonus and one or more otherfinancial incentives, which would offsetthe economic impact on developers.Standardizing of the maximum payment inlieu amounts charged to residential andnon-residential developers and propertyowners throughout the State ensures thatthe amount charged realistically reflectsthe costs of subsidizing an affordable unit,which would have a positive economicimpact for developers. Although not yetintroduced, Legislation will be proposedto prohibit the imposition of an affordable[*70] housing requirement of payment inlieu of construction upon thenon-residential sector, and instead impose

2010 N.J. Super. LEXIS 201, *66

a statewide development fee, which wouldhave a positive impact on non-residentialdevelopers because the fees would begenerally lower. In addition, applying thedevelopment fee uniformly throughout theState adds predictability and certainty tothe process. The proposed standards couldeither have a positive or negativeeconomic impact on the municipality,depending on whether the municipality'scurrent established subsidy amount isgreater than or less than the COAHestablished subsidy amount.

[40 N.J.R. 237(a), 240-41 (Jan. 22,2008).]

The Director of the Office of Administrative Lawaccepted COAH's socio-economic impact statement forfiling. See N.J.S.A. 52:14B-5(d)(3) ("filing of a certifiedcopy of any rule shall be deemed to establish therebuttable presumption that . . . all requirements of [theAPA] and of interagency rules of the director relative tosuch rule have been complied with").

Berlin argues that the third round rules mustnevertheless be invalidated because COAH'ssocio-economic impact statement does not set forth thetrue costs of implementation of the rules. [*71] Relyingupon a study conducted by the Office of LegislativeServices, Berlin claims that the true cost of implementingthe third round rules through the expiration of the thirdround period in 2018 will be $ 28.5 billion.

The essential purpose of the socio-economic impactstatement mandated by N.J.S.A. 52:14B-4(a)(2) is toprovide interested parties with notice of the impactsanticipated by the agency proposing the rule. See In reCoastal Permit Program Rules, supra, 354 N.J. Super. at364-65, 807 A.2d 198; In re Prop. Disposition of aCasino License, 224 N.J. Super. 316, 324, 540 A.2d 523(App. Div. 1988). Such notice affords interested partiesthe opportunity to participate meaningfully in therule-making process and to "inform[] regulators ofpossibly unanticipated dimensions of a contemplatedrule." In re Coastal Permit Program Rules, supra, 354N.J. Super. at 365, 807 A.2d 198 (quoting Fed. Pac. Elec.Co. v. New Jersey Dep't of Env't Prot., 334 N.J. Super.323, 340-41, 759 A.2d 851 (App. Div. 2000)).

COAH's socio-economic statement accompanyingthe proposed revised third round rules satisfied the noticepurpose of N.J.S.A. 52:14B-4(a)(2). There is nothingsecret about the fact that compliance with affordablehousing obligations may result [*72] in substantial coststo some municipalities. See Mount Laurel II, supra, 92N.J. at 264-65, 456 A.2d 390. However, it is exceedinglydifficult to predict these costs because they will varyfrom municipality to municipality depending not only onthe magnitude of a municipality's affordable housingobligations but also whether the municipality chooses tocomply with those obligations by means of inclusionaryzoning, municipally subsidized affordable housing, orother means. Furthermore, because such costs are highlydependent on decisions made at the local level, individualmunicipalities are in a better position than COAH toestimate what these costs will be. Under thesecircumstances, COAH's socio-economic impact statementaccompanying the proposed third round rules providedadequate notice to municipalities and other interestedparties of COAH's views regarding the rules' expectedeconomic impacts, which gave those parties an adequateopportunity to submit comments on the issue.

Berlin, joined by other municipalities, also arguesthat COAH violated the APA and the OAL'simplementing rules by failing to give municipalities andother interested parties the data required to commentupon on the proposed [*73] third round rules a sufficienttime before the deadline for submission of suchcomments. This argument is directed solely at the parts ofthe rules dealing with the determination of prospectiveneed based on the growth share methodology. We havepreviously invalidated those parts of the rules onsubstantive grounds. Therefore, there is no need to decidewhether those rules also would be subject to invalidationon the basis of COAH's alleged failure to comply withthe procedural requirements of the APA.

16. Rejecting Twenty Municipalities' ArgumentRegarding Definition of "Prior Round Obligations"

The Twenty Municipalities' brief challenges COAH'selimination in N.J.A.C. 5:97-2 of the word "remaining"from the definition of "prior round obligation" containedin N.J.A.C. 5:94-2.1(a). The Twenty Municipalities arguethat municipalities will now be required to submit plansto satisfy the "entire," rather than just the "remaining,"prior round obligations, which will allow "the reopeningof any prior disputes with objectors that were resolved in

2010 N.J. Super. LEXIS 201, *70

a prior round substantive certification."

This argument is too abstract and hypothetical to beconsidered in the present facial challenge to the validity[*74] of the revised third round rules. COAH may notgive the elimination of the word "remaining" theconstruction the Twenty Municipalities fear. Moreover,any attempt by an objector to relitigate a previouslyresolved dispute probably would be barred by theprinciples of collateral estoppel applicable toadministrative proceedings. See City of Hackensack v.Winner, 82 N.J. 1, 32-33, 410 A.2d 1146 (1980).However, some actions taken by municipalities to complywith prior round obligations may never have beenlitigated or approved by COAH through the grant ofsubstantive certification.

17. Egg Harbor's Challenge to Validity of N.J.A.C.5:97-5.8(a), Which Interprets 1,000-Unit Cap UponAffordable Housing Obligations

Egg Harbor Township argues that N.J.A.C.5:97-5.8(a), which limits application of the 1,000-unitcap on affordable housing to a municipality's growthshare obligations, is inconsistent with N.J.S.A.52:27D-307(e), which Egg Harbor argues must beconstrued to apply to a municipality's entire affordablehousing obligation, including the parts attributable topresent need and prior round obligations. Egg Harbor'saggregate third round affordable housing obligation is2,033 residences, consisting [*75] of 100 present needunits, 763 prior round obligation units, and 1,170projected growth share units. We have previouslyinvalidated the parts of the revised third round rules thatdetermine prospective need based on a growth sharemethodology. Therefore, Egg Harbor's only currentaffordable housing obligations are 100 present need unitsand 763 prior round units, which is less than 1,000 totalunits. We cannot be sure that COAH will impose aprospective need obligation upon Egg Harbor on remandthat will result in an aggregate obligation of more than1,000 units. We also cannot be sure that COAH willreadopt N.J.A.C. 5:97-5.8(a) or an equivalent rule.Therefore, the validity of N.J.A.C. 5:97-5.8(a) is not ripefor determination at this time.

18. Credits for Publicly-Financed AffordableHousing Units

The League of Municipalities argues that the revisedthird round rules improperly fail to give a credit against

affordable housing obligations for publicly-financedaffordable units. The League does not cite any specificrule in support of this argument, which is difficult tofollow.

COAH responds that it has granted such credits inthe past and will continue to grant credits against anindividual [*76] municipality's affordable housingobligations for any publicly-financed affordable housing"prospectively built in the third round." Fair Share pointsout that COAH's policy, as reflected in the third roundrules, of providing credits for publicly-financedaffordable housing to the individual municipality inwhich they are constructed, rather than treating suchhousing as reducing statewide need, serves the publicpolicy of encouraging municipalities to permit suchdevelopments.

We are satisfied that the League has not shown thatCOAH's policy is unreasonable or conflicts with theMount Laurel doctrine. However, we suggest that COAHclarify this policy during the course of the remandordered by this opinion.

19. Rejecting Requests for Relief in Pending LawDivision Actions

Several appellants seek relief that goes beyond adetermination of the validity of the revised third roundrules. For example, Kings Row Homes and MTAE seekorders transferring actions they brought against Franklinand Franklin Township back from COAH to the LawDivision. Such a request for relief is not properly beforeus in these appeals, which are limited to facial challengesto the validity of the revised third [*77] round rules.Instead, this relief should be sought in the pending LawDivision actions.

20. Rejecting Requests to Divest COAH ofResponsibility for Adopting Third Round Rules and toAppoint a Master

Kings Row, MTAE and ISP argue that in light ofCOAH's failure to adopt valid third round rules in atimely manner, this court should divest COAH of theauthority to perform this statutory responsibility andadopt third round rules itself with the assistance of amaster. Toms River, Brick and Jackson Townshipspresent a similar argument, although they do not seekappointment of a master.

2010 N.J. Super. LEXIS 201, *73

We rejected a similar request for relief in our prioropinion. See 390 N.J. Super. at 87-88, 914 A.2d 348.Although we have concluded that the parts of the revisedrules that use a growth share methodology to calculateand allocate prospective need are invalid, there is no basisfor us to conclude that COAH failed to make a good faitheffort to adopt third round rules in conformity with ourprior opinion. Furthermore, the mandate of this opinionfor COAH's adoption of new revised third round rules isstraightforward: determine prospective need by means ofa methodology similar to the methodologies used in theprior round [*78] rules. COAH should be able to complywith this mandate within five months without theassistance of a master or an army of outside consultants.Therefore, it would not be appropriate for this court torelieve COAH of its statutory responsibility to adoptvalid third round rules.

21. Conclusion: COAH is Directed to Adopt NewThird Round Rules Within Five Months.

In summary, we invalidate the parts of the revisedthird round rules that use a growth share methodology fordetermining the prospective need for affordable housing.We also conclude that the adoption of valid third roundrules should not be further delayed by allowing COAH toadopt another methodology for determining prospectiveneed that relies upon a growth share approach.Accordingly, we remand to COAH to adopt new thirdround rules that use a methodology for determiningprospective need similar to the methodologies used in thefirst and second rounds. This determination should bemade on the basis of the most up-to-date available data.The remand shall be completed within five months.

We also invalidate N.J.A.C. 5:97-3.2(a)(4)(iv), whichauthorizes a municipality to obtain substantivecertification of a compliance plan that [*79] proposes toconstruct municipally-funded affordable housing withoutany specifics regarding the location of the site or sourceof funding; those parts of the third round rules that fail toprovide sufficient incentives for the construction ofinclusionary developments; N.J.A.C. 5:97-3.5, whichgoverns rental bonuses for prior round obligations; andN.J.A.C. 5:97-3.18, which authorizes compliance bonusesfor affordable housing units approved during the periodfrom December 20, 2004 to June 2, 2008. Consequently,COAH must either eliminate or modify those parts of thethird round rules in conformity with this opinion.

We affirm the other parts of the revised third roundrules, including COAH's determinations of present needand prior round affordable housing obligations.

In view of the fact that more than ten years have nowelapsed since expiration of the second round rules, andthe widely varying circumstances of individualmunicipalities' compliance with their affordable housingobligations, including prior round obligations, we declineto issue a blanket stay of proceedings before COAH or inthe courts pending completion of the remand to COAH.However, any municipality or other interested [*80]party may apply for a stay to COAH or the court in whicha Mount Laurel case is pending. Any such applicationshould be decided in light of the status of the individualmunicipality's compliance with its affordable housingobligations and all other relevant circumstances.

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