Tax Law

NJ Economic Stimulus Act Brings Non-Residential Development Fee Moratorium and Other Relief to Real Estate Developers


On July 27, 2009, Gov. Corzine signed the New Jersey Economic Stimulus Act of 2009 (Stimulus Act). The law takes effect immediately and makes significant changes to existing statutes affecting economic development in New Jersey in order to spur business growth and job creation and to restore the economic health of the state battered by the current recession. Several of the initiatives in the Stimulus Act provide financial relief to the real estate development community including:
 
  • exemption of certain non-residential projects from paying the development fee established under the Statewide Non-Residential Development Fee Act (Development Fee Act) together with the reduction or elimination of the municipal growth share obligation associated with such projects
  • creation of a new incentive grant program for construction of redevelopment projects in certain areas, and
  • expansion of the Urban Transit Hub Tax Credit program to allow mixed-use projects in urban areas to receive business tax credits.
 
This Alert offers a brief summary of these new economic stimulus policies.
 
Suspension of Non-Residential Development Fees and Affordable Housing
 
The Stimulus Act places a moratorium on the imposition of the development fee under the Development Fee Act that became effective on July 17, 2008. The Development Fee Act imposed a statewide development fee for affordable housing equal to 2.5 percent of the equalized assessed value of the land and improvements on all new non-residential development and on expansions to existing non-residential structures. Under the Stimulus Act, non-residential projects that have received either preliminary or final site plan approval before July 1, 2010 are exempt from the development fee, provided a permit for construction is issued prior to January 1, 2013.
 
A non-residential developer is not relieved from responsibility for any affordable housing fee where the developer made an affordable housing contribution or committed itself to make a contribution (either in a written agreement with a municipality or under a condition in a land use approval resolution) before July 17, 2008. The exemption applies only to non-residential projects that are subject to the fee obligation under the Development Fee Act.
 
A developer of an exempted non-residential project who has already paid a fee under the Development Fee Act is entitled to a refund less any affordable housing monies the developer paid or committed to prior to July 17, 2008. To obtain the refund, a developer must submit a written claim for reimbursement to the governmental entity that collected the fee within 120 days of July 27, 2009.
 
Importantly, the Stimulus Act relieves municipalities of their growth share obligations derived from the exempted non-residential developments if the Council on Affordable Housing (COAH) determines, within two years of the law’s effective date, that there are insufficient funds in the New Jersey Affordable Housing Trust Fund or other state or federal programs available to assist municipalities with the production of affordable housing equal to the amount of the monies that would have been collected if not for the fee suspension under the act. The Stimulus Act appropriates $15 million into the State Affordable Housing Trust Fund to reimburse municipalities that must repay fees to developers of exempted non-residential projects if they relied on the collected fees to finance planned affordable housing projects as identified in their fair share plans submitted to COAH.
 
Financing Incentives for Redevelopment Projects
 
The Stimulus Act establishes an Economic Redevelopment and Growth Grant (ERGG) program to promote redevelopment projects in certain “incentive areas” through state and local incentive grants to reimburse developers for all or a portion of project costs. It replaces the revenue allocation district (RAD) program that many viewed as cumbersome. Eligible incentive areas include Planning Area 1 (Metropolitan), Planning Area 2 (Suburban), centers designated under the State Development and Redevelopment Plan, transit villages and federally-owned land approved for closure. Projects in transit villages are not eligible for state incentive grants, but can qualify for municipal (local) incentive grants. The grants are to be used to fill financing gaps of redevelopment projects.
 
The incentive grant payments are administered through an incentive grant agreement signed by a developer with either the New Jersey Economic Development Authority (EDA) for state funding or a municipality for local funding, or both. Payments can last as long as 20 years. A developer must contribute its own capital for at least 20 percent of the redevelopment project costs and certify it has exhausted all other financing sources. A project receiving grants is encouraged to incorporate “green building” and renewable energy technology construction standards.
 
Financing of the incentive grant payments to a developer will come from the incremental revenues generated by the redevelopment project. In the case of a state incentive grant, the state tax revenues directly realized from businesses operating in the redevelopment are pledged towards the grant. In the case of a local incentive grant, the municipality may pledge a variety of revenue sources derived from the redevelopment project to fund the incentive grant, such as incremental increases from payments in lieu of taxes, lease payments and property taxes.
 
Urban Transit Hub Tax Credit for Mixed-Use Projects
 
The Stimulus Act also expands the Urban Transit Hub Tax Credit program to qualified residential projects in urban transit areas, including mixed-use projects composed of predominantly residential units. Developers of such projects can receive a credit of up to 20 percent of their capital investment to be applied against corporate business tax or insurance premium tax liabilities. A developer must make or acquire capital investments totaling at least $50 million in property located within a half-mile radius of mass transit rail stations, including light rail stations, in Trenton, Newark, New Brunswick, Paterson, Elizabeth, Hoboken, Jersey City and East Orange or within a one-mile radius of such rail stations in Camden.
 
Only time will tell whether the Stimulus Act stirs developers to invest again in New Jersey and proceed with development projects. The law is complex and requires careful study to determine the availability of its incentives in particular situations. If you have questions about the non-residential development fee suspension, fee refunds, or any of the other new programs under the New Jersey Economic Stimulus Act of 2009, please contact the authors.
 
The material in this publication is based on laws, court decisions, administrative rulings, and congressional materials, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship. Internal Revenue Service rules require that we advise you that the tax advice, if any, contained in this publication was not intended or written to be used by you, and cannot be used by you, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
 
This article is republished with permission of Pepper Hamilton, LLP. Further duplication without the permission of Pepper Hamilton, LLP is prohibited. All rights reserved.