COAH in Court: Can It Try to Collect Funds from Municipalities?

There's $164 million at stake -- money that could be used to help balance this year's budget rather than build affordable housing

The question of whether the New Jersey Council on Affordable Housing should be allowed to continue its efforts to take from municipalities $164 million meant for the construction of low-priced homes is again before an appeals court panel, which heard arguments on both sides of the issue on Wednesday.

The appellate judges, sitting in Newark, heard arguments on the narrow question of whether to continue an injunction they issued last month preventing COAH from taking the money. They are not considering the bigger question of whether the state’s actions over the past several years have been designed to defeat any attempts at allowing the construction of housing for low- and moderate-income residents, as housing advocates contend, although they did discuss the issue during the 90-minute hearing.

“In the big picture, this is all supposed to be about spending money to build affordable housing; the towns want to write that check,” said Jeffrey R. Surenian, representing the New Jersey State League of Municipalities. “COAH, instead of facilitating the construction of affordable housing is thwarting it.”

The state initially sought last July to take as much as $164 million in unspent municipal housing trust funds, but the Appellate Division of Superior Court stopped the seizure a month later, saying only the council itself could call for the funds. COAH finally met on May 1, for the first time in more than two years, and a majority of those present authorized staff to begin the process of taking back the funds. The judges issued a temporary injunction on taking any money, which the state Supreme Court upheld pending the current appellate review, although the highest court allowed COAH to continue to collect information about what funds may have to be given to the state.

Balancing the Budget

A 2008 law provides that any municipal housing funds, which come from fees on development, that go unspent after four years can revert to the state’s affordable housing trust fund. Technically, this would happen with any seized municipal funds, but the state plans to use the municipal funds to replace other money in a state trust fund, freeing that money up to help balance the current state budget.

“COAH has set up a complete system to maximize how much money they can take,” asserted Kevin Walsh, associate director of Fair Share Housing Center, which sought the injunction. He said that since the court ruled last summer, COAH has not given municipal officials approval to spend any money to build low-cost housing. “Not $1, not $1 million, not $165 million . . . The agency did nothing.”

Walsh argued against the seizure, saying COAH has provided no mechanism to allow municipalities to contest a loss of funds and no opportunities for private groups and others involved in the construction of units to have a say in the matter. The assistant attorney general representing COAH said the process only involves municipalities because they hold the funds and officials who disagree with COAH’s decision about their funds can go to court to appeal. This prompted Judge Jose Fuentes to question whether a host of municipal court filings to contest the seizure of funds was the most practical and cost-effective way to deal with disputes.

“There’s no middle step?” asked Fuentes. He suggested that if COAH worked with municipal officials to clear up any disagreements over whether funds were properly committed to be spent on housing projects that could “save a lot of litigation and a lot of taxpayers’ money hiring lawyers.”

Robert Lougy, the assistant attorney general representing COAH, said that when disputes occur over whether a town’s actions constitute a commitment to spend its funds “that is subject to review, when that happens, by this court.”

“We say regulations are needed for the procedure to seize funds, they say they can make up the procedure process as they go along,” argued Walsh. “It’s a gross violation of due process . . . Why should the court wait until there are widespread violations of its requirements?”

Walsh cited the appellate division’s own order from last summer, stating that municipalities would have the right to contest COAH’s taking of any funds if they disagreed over whether there was a commitment to spend them, as the law specified. All three judges questioned whether that language wasn’t enough to ensure that such a review was available to municipal officials. Walsh said the state’s brief said COAH would not conduct such reviews.

He also said that since most of the municipal money is spent by partnering with local organizations that build units, these groups should also have been notified of COAH’s intention to take the funds and have an opportunity to provide their own evidence of a valid contract to spend the funds.

Judge Jane Grall asked Lougy whether such partner organizations should have been notified.

“The statute relies only on the municipalities to collect the affordable housing trust funds,” Lougy said.

“It’s inconceivable to the state that other parties to a contract might have information to provide and have an opportunity to be heard?” Grall asked.

Significant Discussion

Although the larger question of the COAH seizure is not to be decided as part of this case, there was a significant amount of discussion about it, with views on both sides.

“For some period of time now, everyone has known this is what municipalities are required to do and some municipalities have chosen not to do it,” said Judge Carmen Messano. “I’m not faulting them for that.”

“If the municipalities knew what they were supposed to do, I would fault them,” answered Walsh. But he said one of the problems is “the agency is not letting them spend the money.”

Fuentes said officials have known since the passage of the law that they had to commit to spend the money and some have not taken steps to do so. Walsh, however, said municipalities have been prevented from building units by COAH because it is not approving spending plans.

Both Walsh and Surenian cited the case of Middle Township, which is seeking COAH approval to spend about $1.5 million to build 159 affordable units. It filed a motion asking COAH to act shortly after superstorm Sandy struck. COAH’s acting executive director finally approved the township’s spending plan on May 30, but in its order stated specifically that its approval “shall not be deemed a commitment to expend within four years from the date of collection.” Only an approved commitment to expend money will stop COAH from taking a municipality’s trust funds.

“COAH has exclusive jurisdiction over the trust funds; municipalities cannot spend money without approval,” Walsh said. “There are probably 200 spending plans on COAH’s desk that they haven’t approved.” At its last meeting, COAH gave its director the power to approve about 30 or 40 plans, but, he continued, “Not a single municipality in the state has been told, ‘You have a commitment to expend money.’”

On top of that, COAH has given officials a new directive, which is that if they spend money and the council winds up not approving their spending, “you will have to give the money back,” added Walsh.

Because COAH has not acted, “there are thousands of parcels that would, but for this delay, be in the ground,” Walsh said. “It’s one big effort to take as many funds as possible. To play hide the ball with true consequences for real people, particularly in light of Hurricane Sandy. There’s no other way to see it.”

Fuentes asked Lougy whether COAH indeed had not responded to hundreds of requests from municipalities to get approval for their housing plans.

“Yes,” he said, and in part blamed COAH’s inaction on Fair Share, which has a number of COAH cases pending before state courts. “Were the executive director to have attempted to make a determination, we would be right back here before you . . . COAH staff is very reluctant in light of your August order to make determinations.”

He said the court should only continue the injunction if it determines “irreparable harm” would occur otherwise and that is not the case because municipalities will have the right to contest any COAH taking of their funds in court.

The court reserved its decision but Fuentes indicated the judges were aware that COAH had sought to have taken the money back by the end of May and said they would rule very soon.