Introduction. Statutory Background

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1 To: New Jersey Law Revision Commission From: Patrick McGinnis Re: Local Redevelopment and Housing Law Date: July 6, 2015 Introduction This memorandum addresses the Local Redevelopment and Housing Law, ( LRHL ) the New Jersey statutory framework that permits municipalities to categorize private property as being in need of redevelopment, and thus subject to taking via eminent domain. 1 The categorization of private property as being in need of redevelopment under the LRHL is a controversial issue in New Jersey that has sparked significant litigation for decades. 2 In 2007, the New Jersey Supreme Court handed down its opinion in Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 3 in which the Court unanimously held that the LRHL was limited by the Blighted Areas Clause of the New Jersey Constitution. 4 In March of 2015, the New Jersey Supreme Court handed down its divided opinion in Main Street, L.L.C. v. Mayor and Council of City of Hackensack, 5 in which the Court s determination differed from the precedent established in the Gallenthin opinion. Statutory Background A municipality may classify property as being in need of redevelopment under any of the following statutory criteria: a. The generality of buildings are substandard, unsafe, unsanitary, dilapidated, or obsolescent, or possess any of such characteristics, or are so lacking in light, air, or space, as to be conducive to unwholesome living or working conditions. b. The discontinuance of the use of buildings preciously used for commercial, manufacturing, or industrial purposes; the abandonment of such buildings; or the same being allowed to fall into so great a state of disrepair as to be untenantable. c. Land that is owned by the municipality, the county, a local housing authority, redevelopment agency or redevelopment entity, or unimproved vacant land that has remained so for a period of ten years prior to adoption of the resolution, and that 1 N.J. Stat. Ann. 40A:12A-1 to -49 (West 2014). 2 See, e.g., Main Street, L.L.C. v. Mayor and Council of City of Hackensack, 221 N.J. 129 (2015); Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 191 N.J. 344 (2007). The Blighted Areas Act, which was the LRHL s virtually identical predecessor, was similarly contentious. See, e.g., Levin v. Twp. Comm. of Bridgewater, 57 N.J. 506 (1971); Wilson v. City of Long Branch, 27 N.J. 360 (1958) N.J. 344 (2007). 4 N.J. Const. art. 8, 3, par N.J. 129 (2015). Local Redevelopment and Housing Law Memorandum Page 1

2 by reason of its location, remoteness, lack of means of access to developed sections or portions of the municipality, or topography, or nature of the soil, is not likely to be developed through the instrumentality of private capital. d. Areas with buildings or improvements which, by reason of dilapidation, obsolescence, overcrowding, faulty arrangement or design, lack of ventilation, light and sanitary facilities, excessive land coverage, deleterious land use or obsolete layout, or any combination of these or other factors, are detrimental to the safety, health, morals, or welfare of the community. e. A growing lack or total lack of proper utilization of areas caused by the condition of the title, diverse ownership of the real properties therein or other similar conditions which impede land assemblage or discourage the undertaking of improvements, resulting in a stagnant and unproductive condition of land potentially useful and valuable for contributing to and serving the public health, safety and welfare, which condition is presumed to be having a negative social or economic impact or otherwise being detrimental to the safety, health, morals, or welfare of the surrounding area or the community in general. f. Areas, in excess of five contiguous acres, whereon buildings or improvements have been destroyed, consumed by fire, demolished or altered by the action of storm, fire, cyclone, tornado, earthquake or other casualty in such a way that the aggregate assessed value of the area has been materially depreciated. g. In any municipality in which an enterprise zone has been designated pursuant to the New Jersey Urban Enterprise Zones Act, P.L.1983, c. 303 (C.52:27H-60 et seq.) the execution of the actions prescribed in that act for the adoption by the municipality and approval by the New Jersey Urban Enterprise Zone Authority of the zone development plan for the area of the enterprise zone shall be considered sufficient for the determination that the area is in need of redevelopment pursuant to sections 5 and 6 of P.L.1992, c. 79 (C.40A:12A-5 and 40A:12A-6) for the purpose of granting tax exemptions within the enterprise zone district pursuant to the provisions of P.L.1991, c. 431 (C.40A:20-1 et seq.) or the adoption of a tax abatement and exemption ordinance pursuant to the provisions of P.L.1991, c. 441 (C.40A:21-1 et seq.). The municipality shall not utilize any other redevelopment powers within the urban enterprise zone unless the municipal governing body and planning board have also taken the actions and fulfilled the requirements prescribed in P.L.1992, c. 79 (C.40A:12A-1 et Local Redevelopment and Housing Law Memorandum Page 2

3 al.) for determining that the area is in need of redevelopment or an area in need of rehabilitation and the municipal governing body has adopted a redevelopment plan ordinance including the area of the enterprise zone. h. The designation of the delineated area is consistent with smart growth planning principles adopted pursuant to law or regulation. 6 Once a municipality classifies property as being in need of redevelopment, the property is subject to taking via eminent domain. 7 Redevelopment designations made by municipalities are entitled to deference as long as they are supported by substantial evidence on the record. 8 Gallenthin Realty Development, Inc. v. Borough of Paulsboro In Gallenthin, the New Jersey Supreme Court was asked to rule on the constitutionality of N.J.S. 40A:12A-5(e). At the time, N.J.S. 40A:12A-5(e) had one key difference, which was the focus of the litigation: private property was subject to a municipal classification of being in need of redevelopment if the municipality found a growing lack or total lack of proper utilization of areas caused by the condition of title, diverse ownership of the real property therein or other conditions, resulting in a stagnant or not fully productive condition of land... 9 Paulsboro understood this statute to grant it permission to classify any property as in need of redevelopment so long as that land was not fully productive. Paulsboro s contention was that any property in New Jersey that could potentially be put to some better use was subject to classification as in need of redevelopment. 10 Following an analysis of the legislative history surrounding the LRHL, the Court ruled against Paulsboro s reading of the statute. 11 As a threshold matter, the Court ruled that the Blighted Areas Clause of the New Jersey Constitution simultaneously grants and limits a municipality s redevelopment authority. 12 Property must satisfy the constitutional requirement of being blighted prior to municipal classification that the property is in need of redevelopment. Recognizing that blight can be an opaque concept, the Court nonetheless held that the essential characteristic of blight was clear: deterioration or stagnation that negatively affects surrounding properties N.J. Stat. Ann. 40A:12A-5 (West 2014). 7 N.J. Stat. Ann. 40A:12A-8(c) (West 2014). 8 N.J. Stat. Ann. 40A:12A-6(b)(5)(c) (West 2014). 9 Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 191 N.J. 344, 357 (2007). 10 Id.at Id. at The [Blighted Areas Clause] grants authority to those entities only to the extent allowed by our State Constitution. The clause operates as both a grant and limit on the State s redevelopment authority. Id. at Id. at 363. See also id. at 360 ( [T]he term presumes deterioration or stagnation that negatively affects surrounding areas. ); Id. at 365 ( At its core, blight includes deterioration or stagnation that has a decadent effect on surrounding property. ) Local Redevelopment and Housing Law Memorandum Page 3

4 The Court reviewed N.J.S. 40A:12A-5(e), and interpreted the language in such as way as to avoid rendering N.J.S.A. 40A:12A 5(e) unconstitutional and give effect to the Legislature's original purpose in adopting the language that would become subsection 5(e). 14 Because Paulsboro s redevelopment designation was based on an interpretation of the law deemed by the Court to be improper, the Court did not need to address whether there was substantial evidence on the record to support Paulsboro s redevelopment classification. Nonetheless, the Court briefly addressed the issue, pointing out that the substantial evidence standard is not met if the municipality s classification is supported by nothing more than an expert opinion s statement that the statutory criteria have been satisfied Main Street, L.L.C. v. Mayor and Council of City of Hackensack In Main Street, the New Jersey Supreme Court was asked to make clear whether the holding in Gallenthin that the LRHL was being applied unconstitutionally applied to the entirety of the LRHL, or specifically to N.J.S. 40A:12A-5(e). More specifically, the Court was asked whether deterioration or stagnation that negatively affects surrounding properties was a necessary condition for an in need of redevelopment classification under the LRHL. 16 The Court rejected the notion that Gallenthin established a constitutional blight standard, explaining that to the extent that the language in Gallenthin has created any misunderstanding, we now make explicit that we did not intend to create a constitutional blight standard. 17 Instead, the Court held that the Gallenthin ruling applied only to N.J.S. 40A:12A-5(e), and that municipalities did not need to show that property suffered from deterioration or stagnation that negatively affects surrounding properties in order to classify that property as in need of redevelopment. 18 In his dissent, Chief Justice Rabner indicated that the language of Gallenthin was clear, and that the majority in Main Street failed to recognize the constitutional command of the Blighted Areas Clause and its interplay with the LRHL. 19 He further suggested that the majority was erasing the most significant impact of Gallenthin: guard[ing] against the real risk of abuse that the power of eminent domain presents. 20 Chief Justice Rabner also indicated that the record did not satisfy the substantial evidence standard, and that the evidence presented by Hackensack essentially purported the very possibility that Gallenthin found unacceptable: that private property might be redeveloped because it is not used in an optimal manner Gallenthin Realty Dev., Inc., at The substantial evidence standard is not met if a municipality s decision is supported only by the net opinion of an expert. In general, a municipality must establish a record that contains more than a bland recitation of applicable statutory criteria and a declaration that those criteria are met. Id. at 373 (citations omitted). 16 See, Main Street, L.L.C. v. Mayor and Council of City of Hackensack, 221 N.J (2015). 17 Id. at Id. at See id. at ( To satisfy the commands of the Constitution, the government must show that the property it seeks to take is blighted....[t]he majority s approach falls short of that imperative. ) 20 Id. at Id. at 188. Local Redevelopment and Housing Law Memorandum Page 4

5 Conclusion Staff seeks authorization from the Commission to undertake a project in this area in an effort to research and clarify the statutory language of the LRHL. Local Redevelopment and Housing Law Memorandum Page 5