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Bi-County Development of Clinton, Inc. v. Borough of High Bridge

174 N.J. 301, 805 A.2d 433 (2002)

MOUNT LAUREL— Where connection into a neighboring municipality’s sewerage system would only serve to lower a developer’s costs and the developer wasn’t going to build affordable housing units anyway, but only pay a development fee in lieu thereof, the neighboring community is not required by the Mount Laurel Doctrine to allow such a connection.

A developer owned a tract that was zoned to permit residential development of eight units per acre. It was located near the intersection of major highways and surrounded by a recreation area owned and operated by the state. Following a builders remedy law suit, the property was zoned for an “inclusionary development” pursuant to the municipality’s certified Housing Element and Fair Share Plan (HEFSP). The developer received preliminary subdivision approval permitting the development of 187 single family residential units. Subsequently, it proposed construction of only 105 single family units with a small portion of land reserved for a commercial component of the development. An adjacent municipality owned and operated a sewerage conveyance system that pumped through the municipality where the tract was located. The developer’s project needed sufficient sewerage treatment capacity as well as a connection to a sewerage treatment facility. Although litigation with its own municipality resulted in an arrangement whereby that municipality would provide the sewerage treatment capacity, the developer proposed, as an alternative, that it use part of the available sewer capacity in the sewer line owned by the neighboring municipality.

To resolve the dispute over fair share housing on the developer’s tract, an agreement was reached between the developer and its own municipality. That agreement gave the developer “the option either to seek approval for ‘an on-site set aside for affordable housing of ten percent (10%) of total units (evenly distributed between low and moderate units)’ or, [a]lternatively, at [the developer’s] sole discretion, [it could make a] contribution to the [municipality] of Two Thousand Dollars ($2,000) for each of the up to 187 market rate units to be approved by the Planning Board ..., to be used by the [municipality] for the satisfaction of its Mt. Laurel obligation… .” If the developer elected the contribution plan, that would be its sole responsibility regarding the municipality’s Mount Laurel obligation. Furthermore, the agreement provided that “the Contribution in lieu of an on-site set aside, ... shall be used by the Township solely for the creation of a realistic housing opportunity for low and moderate income households consistent with COAH regulations and subject to COAH approval.”

The Court recognized that sewer capacity in the municipality was “of limited supply and a durational adjustment might be required as a result of inadequate sewer capacity.” A durational adjustment is a deferral of the municipality’s fair share obligation due to inadequate infrastructure. The municipality agreed “to take such action as is reasonable, appropriate and necessary to assist [the developer] in obtaining such access and treatment capacity and otherwise diligently support and cooperate with [the developer] in its efforts to achieve sewer treatment and capacity.” In fulfillment of that obligation, the municipality agreed to assign all of its rights under a contract regarding sewer capacity. The municipality also agreed that if the developer was unable to reach agreements with private parties, it would use its power of eminent domain to procure necessary water and/or sewer easements.

The limited public water and sewer capacity continued to be a problem. One solution was to construct sewer lines along a state highway to connect with the municipal system. The developer, however, was unable “amicably to obtain sewerage treatment capacity for the proposed development.” Therefore, it instituted litigation against its municipality to obtain the necessary reservation of sewer treatment capacity. Although it apparently resolved the issue of transmitting sewerage from the proposed development to the municipality’s treatment works, the developer “subsequently developed an alternative plan in order to avoid construction of a new sewer line” along the state highway. Instead, it sought to gain access to a sewer system operated by the State of New Jersey which required connection to the neighboring municipality’s sewerage conveyancing system. The state eventually agreed to cooperate but the neighboring community refused to grant access. The developer then brought an action against the neighboring community arguing that because its project was an “inclusionary” development and that, “as such, [the neighboring community had] an obligation to eliminate any ‘undue cost generating practices’ pursuant to the Fair Housing Act and COAH regulations,” the neighboring community should have been forced to cooperate. The neighboring community responded that the developer’s project was “not entitled to such preferential treatment.” It asserted that because the developer was building in a different municipality, it had no “obligation to minimize [the developer’s] cost, and also note[d] that [the developer did] not intend to construct any low or moderate income housing, but merely contemplate[d] a monetary contribution.”

The lower court granted relief to the developer and ordered the neighboring municipality to permit the developer access to its sewerage conveyancing system. Its feeling was based on the substantial cost differential to the developer if it were required to construct a new line along the state highway as opposed to using the existing neighboring municipality’s line and system. As such, it found “that the significant costs of constructing a new line were ‘undue expenses because they are unnecessary.” On appeal, the neighboring community argued that the developer “was not an inclusionary developer entitled to preferential treatment simply because it made a monetary contribution in lieu of actually constructing affordable housing.” The Appellate Division agreed and reversed the lower court’s summary judgment, concluding that a developer that pays money into a municipality’s affordable housing fund in lieu of constructing units affordable to low and moderate income households does not have a right to connect into the sewer system of an adjoining municipality that has ‘elected to reserve the use of its system for its own residents.’” The Appellate Division observed that compelling the neighboring municipality to provide access would not “facilitate the construction of lower income housing. ... Rather, it would only lower the costs and thereby increase the potential profits from the development of single family homes and a commercial building.’” It further noted that the developer’s reliance on a New Jersey Supreme Court statement that “development fees are the functional equivalent of mandatory set-aside scheme authorized by Mount Laurel II and the FHA” was misplaced.

On further appeal, the New Jersey Supreme Court examined New Jersey statutes regarding sewerage treatment facilities. As such, it observed that statutes permitted governmental units to join together and share access to, and the cost and expense of, sewerage facilities, but it also observed that the “statutory scheme does not require a municipality to provide sewerage services to anyone other than its residents and, as a general rule, a municipality that provides services for the benefit of its residents is under no obligation to extend its services to those beyond its borders.” On the other hand, the Court pointed out that there was a “regional focus on meeting the low and moderate income housing need expressed in Mount Laurel I and Mount Laurel II.” It cited, with favor, a lower court case that held: “[T]he time has come to recognize, however, that even in the absence of a pre-existing co-operation or inter-municipal agreement, each municipality, whether developing or developed, has an obligation to facilitate, if not assist, the regional goal of providing realistic housing opportunities for low and moderate income people in a cost effective manner.” Having said that, the Court also recognized such responsibilities have limits.

According to the Court, COAH regulations “on their face apply to the cost generating restrictions only of the municipality seeking substantive certification.” It endorsed COAH’s acknowledgment that COAH lacks statutory authorization to grant relief from cost generating restrictions imposed by a neighboring municipality.” Accordingly, the Court recognized that the COAH procedure would not assist it in resolving the issue at the root of the case before it. It then took note of an Appellate Division case that required a neighboring municipality to permit a developer to connect to an existing inter-municipal sewer system. That project, however, actually included low and moderate income housing. Also, in that project, sewer access was essential for the project to go forward. Consequently, with reluctance, the Court conceded that “[t]hose circumstances in part explain the court’s grant of an acceptance to the general rule that residents in one municipality have no right to compel a connection to a neighboring municipality’s sewer system.” In contrast to that Appellate Division case, the developer in this case was not building low and moderate income houses. Further, the success of its development was not at stake. The developer had alternative means of acquiring sewer service and could extend the sewer line along the state highway. “Although more expensive than connecting into [the neighboring municipality’s system, that alternative was [the developer’s] plan when the development was granted initial subdivision approval.” Consequently, just as the Appellate Division recognized, the Supreme Court recognized that allowing connection into the neighboring municipality’s sewer system “would not facilitate the construction of low income housing. It would only lower the costs and thereby increase the potential profits” of the developer. As a result, the Court opined that “a payment of the development fee, either by commercial developers, non-inclusionary residential developers, or by the owners of inclusionary residential sites in the form of lieu payments, does not have a sufficient nexus to the actual production of low income housing to justify infringing on another municipality’s right to restrict access to a sewer system. ... Compelling circumstances should exist in order to justify, under Mount Laurel principles, disturbing the general rule that a municipality may exclude another municipality or its residents from using or connecting to a sewer system.”

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