Holmdel Builders Ass'n v. Township of Holmdel

The opinion of the Court was delivered by

In 1975, this Court held that developing municipalities are constitutionally required to provide a realistic opportunity for the development of low- and moderate-income housing. Southern Burlington County NAACP v. Mount Laurel Township, 67 N.J. 151, 336 A.2d 713, cert. denied, 423 U.S. 808, 96 S.Ct. 18, 46 L.Ed.2d 28 (1975) (Mt. Laurel I). In the years following, many municipalities failed to comply with the clear mandate of Mt. Laurel I. The failure to provide the necessary opportunity for affordable housing led to a new legal challenge. We clarified and reaffirmed the constitutional mandate set forth in Mt. Laurel I, imposing an affirmative obligation on every municipality to provide its fair share of affordable housing. Southern Burlington County NAACP v. Mount Laurel Township, 92 N.J. 158, 456 A.2d 390 (1983) (Mt. Laurel II). We enumerated several possible approaches by which municipalities could comply with the constitutional obligation, includ *556 ing lower-income density bonuses and mandatory set-asides. We stressed that “municipalities and trial courts are encouraged to create other devices and methods for meeting fair share obligations.” Id. at 265-66, 456 A.2d 390. Subsequently, the Legislature codified the Mt. Laurel doctrine, including its available compliance measures, by enacting the Fair Housing Act, L.1985, c. 222; N.J.S.A. 52:27D-301 to -329 (FHA). We have since upheld the constitutionality of the FHA. Hills Dev. Co. v. Bernards Township, 103 N.J. 1, 25, 510 A.2d 621 (1986).

The cases that comprise this appeal arise out of attempts by several municipalities to comply with their obligation to provide a realistic opportunity for the construction of affordable housing under our ruling in Mt. Laurel II and the provisions of the FHA. The Townships of Chester, South Brunswick, Holmdel, Middletown, and Cherry Hill all adopted ordinances to provide for low- and moderate-income housing. The ordinances, in varying forms, impose fees on developers as a condition for development approval. The fees are dedicated to an affordable-housing trust fund to be used in satisfying the municipality’s Mt. Laurel obligation.

Several builders’ associations initiated suits challenging those ordinances, claiming that each was an ultra vires act, exceeding the authority of the zoning and police powers and the Fair Housing Act; an invalid tax in violation of the uniform property taxation requirement of the New Jersey Constitution; a taking without just compensation in violation of both the United States and New Jersey Constitutions; and a denial of due process and equal protection in violation of both the United States and New Jersey Constitutions. Plaintiff New Jersey Builders Association sought a refund of the monies paid into the Chester Township affordable-housing trust fund plus accrued interest.

The trial courts in each case except Cherry Hill ruled that the ordinance at issue was facially unconstitutional because it imposed an unauthorized tax on a select group of individuals. The trial court in Chester also held that the New Jersey Builders Association lacked standing to seek a refund on behalf *557 of its members. The courts did not address the due-process, equal-protection, and taking claims. In each case except Cherry Hill, they granted summary judgment to plaintiffs. In denying plaintiff’s summary-judgment motion in Cherry Hill, the trial court ruled that the ordinance was constitutional and within the scope of municipal power. We denied the unsuccessful defendants’ motions for direct certification.

Defendants, and Cherry Hill as intervenor, appealed the grants of summary judgment on the substantive issues, and plaintiff New Jersey Builders Association cross-appealed on the standing issue. Consolidating the cases on appeal, the Appellate Division affirmed each case except Holmdel. The Appellate Division concluded that mandatory provisions for “in lieu” development fees are unauthorized revenue-raising devices. Holmdel Builders Ass’n v. Township of Holmdel, 232 N.J.Super. 182, 193, 556 A.2d 1236 (App.Div.1989). As such, it deemed mandatory development fees invalid taxes. It agreed with the trial courts that shifting a public responsibility to a limited segment of the community violates the State Constitution’s rule of uniform taxation. Id. at 193-94, 556 A.2d 1236. The court further concluded that ordinances requiring mandatory set-asides are valid only if accompanied by zoning incentives, such as a density bonus, that bear a reasonable relationship to the cost incurred in constructing the mandatory-set-aside housing. Id. at 201, 556 A.2d 1236. The court ruled, that a voluntary provision allowing a developer to choose between constructing affordable housing or paying an “in lieu” development fee into an affordable-housing trust fund is valid provided that the fee bears a reasonable relationship to the benefits conferred by the density bonus. Ibid. With respect to the cross-appeal, the Appellate Division determined that a trade organization does not have standing to seek a refund on behalf of its members. Id. at 204, 556 A.2d 1236.

Accordingly, the Appellate Division ruled that the ordinances of the Townships' of Chester and South Brunswick, which require payment of a mandatory development fee, were invalid *558 because they imposed an unauthorized tax. Middletown Township’s ordinance was held invalid because one section imposed a mandatory development fee, while another section required a mandatory set-aside without providing a compensating benefit. The court concluded that the voluntary nature of Holmdel’s ordinance and its optional provision for an increase in density, giving the developer a compensating benefit, was facially valid; it remanded the Holmdel case for a plenary hearing with respect to the validity of Holmdel’s ordinance as applied. The Appellate Division did not rule on intervenor Cherry Hill’s ordinance.

We granted defendants’ and intervenor’s petitions, as well as the cross-petitions for certification of plaintiffs New Jersey Builders Association and Holmdel Builders Association. 117 N.J. 150, 151, 564 A.2d 871, 872 (1989). We also granted motions for leave to submit amicus briefs by the Public Advocate, the Civic League of Greater New Brunswick and the League of Women Voters, and Princeton Township.

This appeal raises two major substantive issues. One is whether there is statutory authority, derived from the FHA, the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1 to -129, and the general police power of government, N.J.S.A. 40:48-2, that enables a municipality to impose affordable-housing development fees as a condition for development approval. That issue raises the related questions whether the development-fee ordinances constitute an impermissible taking of property or violate substantive due process or equal protection. The second major issue is whether affordable-housing development fees are an unconstitutional form of taxation. Finally, if these ordinances are invalid, the appeal presents the issue whether a trade organization has standing to seek a refund on behalf of its members.

I.

Resolution of these several issues requires initially a presentation of the municipal ordinances involved in this case. It is *559 also important to explain the statutory and administrative, framework structured by the FHA within which these ordinances were adopted and the role of the Council on Affordable Housing (COAH or the Council), the administrative agency created under the FHA, in the adoption, of local ordinances designed to fulfill a municipal fair-share affordable-housing obligation.

Chester Township’s Mt. Laurel obligation is limited to indigenous need. Accordingly, the Township amended its zoning ordinance to address its Mt. Laurel obligation. The purpose of the ordinance is to require all new development to share in the cost of Mt. Laurel compliance. The ordinance creates an affordable-housing trust fund and imposes a mandatory development fee on all new commercial and residential development as a condition for receiving a certificate of occupancy. New developments that are “identified as the type of construction which assists the Township in satisfying its affordable housing obligations under Mt. Laurel II” do not pay the fees. The ordinance specifically states that the purposes of the affordable-housing trust fund are:

To provide technical and financial assistance where needed, to small lot owners to encourage them to develop quality, low-cost housing;

To develop low-cost housing directly;

To provide assistance to the Township in managing the low-cost housing program;

To provide a working fund of capital to be used as grants, subsidies, or loans as may be required to help meet the Township’s obligation under Mt. Laurel II.

The amount of the fee varies in accordance with the proposed size of the development, ranging from twenty-five cents to seventy-five cents per square foot. Because the Township has determined that rehabilitating existing affordable units is the best way to satisfy its indigenous-need obligation, it does not give developers the option of constructing affordable housing.

South Brunswick Township concluded that “the constitutional obligation to provide affordable housing should apply not merely to those owners of tracts specifically rezoned for meeting this obligation, but rather to the developers of other residential, *560 commercial or industrial property,” and therefore adopted a zoning ordinance creating an affordable-housing trust fund. The ordinance imposes development fees on all new commercial and non-inclusionary residential development as a condition for site-plan or subdivision approval. The fees for non-inclusionary residential developments are calculated on the basis of the proposed size of the development. The fees for non-residential developments depend on the type of project involved, ranging from twenty-five to fifty cents per square foot. The municipality’s stated purpose in creating the fund is to rehabilitate substandard housing and thus provide its fair share of affordable housing.

Middletown Township determined, in light of the need for affordable housing created by employment and growth patterns, that all new development should share “in the cost of that portion of the present and future [Mt. Laurel ] obligation attributable directly or indirectly to the development.” It adopted an ordinance requiring all new major residential-subdivision and site-plan applications to set aside seven percent of the development’s total dwelling units for lower-income housing. On residential tracts other than those zoned specifically for inclusionary development, a developer may make a cash contribution to the affordable-housing trust fund in lieu of actually constructing the affordable units. The fee ranges from eighty cents to $1.80 per square foot, depending on the total gross floor area. All non-residential developers are required to pay a development fee into the fund. Density bonuses do not accompany the mandatory set-aside requirement, the fee-in-lieu option, or the mandatory-fee requirement. The trust-fund contributions are to be used to produce affordable housing. Production includes “the construction, rehabilitation, purchase for resale, direct subsidy, land acquisition, or mortgage financing of housing affordable for purchase or rental by lower income households as well as the funding of Regional Contribution Agreements.”

*561 Holmdel Township’s zoning ordinance, prior to 1986, permitted a maximum density of .8 dwelling units per acre in the R-40A residential zone. In 1986, an amendment to the ordinance re-zoned a portion of the R-40A zone to create an R-40B zone. The R-40B zone downgraded density from .8 to .4 units per acre. A developer may build .6 units per acre, however, if he or she contributes the equivalent of 2.5% of the purchase price of all units to the municipality’s affordable-housing trust fund. The trust fund is used only for “those purposes that produce a direct benefit to the production of either a higher ratio of lower income units in a given project, a reduction in the cost of producing lower income units that shall be passed on to the purchaser or tenant of the unit, or the direct construction of units such as township-sponsored project[s].”

Cherry Hill Township’s Mt. Laurel obligation is not limited to indigenous need. The Township claims it is approaching “total build out,” and therefore adopted a housing impact-fee ordinance. Building permits are issued only for those developments that pay an impact fee into the affordable-housing trust fund. Inclusionary developments and small, inexpensive, single-family detached houses are exempt from the fee requirement. Otherwise, residential developments are assessed a fee based on the proposed size of the project, and commercial development is assessed a fee based on a percentage of the cost of construction. The trust fund is to be used “at the discretion of the Township for the sole purpose of aiding in the provision or rehabilitation of modest income housing.”

In sum, the Townships of Chester and South Brunswick have enacted ordinances that impose a mandatory development fee on all new non-inclusionary developments as a condition for development approval. Their ordinances do not give developers a density bonus in exchange for the development fee. Middle-town Township’s ordinance imposes a mandatory development fee on all new commercial development as a condition for development approval. Non-inclusionary residential developers may choose between constructing the affordable housing or *562 paying an in-lieu fee. Density bonuses do not accompany any of the options. Holmdel Township enacted an ordinance that gives developers a density bonus if they contribute to an affordable-housing trust fund. Cherry Hill Township’s ordinance imposes a mandatory development fee on all new commercial developments and non-inclusionary residential developments of a sufficient size.

We consider these ordinances in the context of the FHA, which substantially codified the Mt. Laurel doctrine. The Council on Affordable Housing is the agency constituted to implement the FHA. It plays a critical role in the adoption of ordinances that address municipal affordable-housing needs. Every municipality with an affordable-housing obligation must submit to COAH for approval its plan to meet that need. Each of the municipalities involved here has received substantive certification of its housing-plan element following COAH review. The affordable-housing development fees authorized by the ordinances that are the subject of this appeal clearly bear on each municipality’s housing-plan element. COAH, however, ruled that the housing-plan element of each municipality was valid aside from those ordinances.

II.

Any inquiry into the validity of development-fee ordinances must inevitably consider the complex factors that contribute to the persistent and substantial shortage of low- and moderate-income housing (hereafter, lower-income or affordable housing).' This inquiry necessarily begins with our seminal decisions in Mt. Laurel I and Mt. Laurel II.

The core of those decisions is that every municipality, not just developing municipalities, must provide a realistic, not just a theoretical, opportunity for the construction of lower-income housing. We realized that the solution to the shortage of affordable housing could not “depend on the inclination of developers to help the poor, [but rather must rely] on affirma-' *563 tive inducements to make the opportunity real.” Id., 92 N.J. at 261, 456 A.2d 390. The principal mode of compliance suggested in Mt. Laurel II was mandatory set-asides. We flatly rejected claims that such inclusionary measures amount to a taking without just compensation and an impermissible socio-economic use of the zoning power, concluding that “the builder who undertakes a project that includes a mandatory set-aside voluntarily assumes the financial burden, if there is one, of that condition.” Id. at 267 n. 30, 456 A.2d 390. However, we never envisaged mandatory set-asides as the exclusive solution for the dearth of lower-income housing. In Mt. Laurel II, we encouraged municipalities “to create other devices and methods for meeting fair share obligations.” 92 N.J. at 265-66, 456 A.2d 390.

The solutions proposed in Mt. Laurel II to meet the critical shortage of affordable housing were strongly influenced by the Court’s perception of the causes of that shortage. We noted that the flight of industry and commerce from urban to suburban areas is largely responsible for the social ill that the Mt. Laurel doctrine is intended to address.

[S]ince World War II there has been a great movement of commerce, industry, and people out of the inner cities and into the suburbs. At the same time, however, exclusionary zoning made these suburbs largely inaccessible to lower income households. Beside depriving the urban poor of an opportunity to share in the suburban development, this exclusion also increased the relative concentration of the poor in the cities and thereby hastened the flight of business and the middle class to the suburbs. A vicious cycle set in as increased business and middle class flight led to more urban decay, and more urban decay led to more flight, etc. [Id. at 210 n. 5, 456 A.2d 390.]

The phenomenon of unfettered non-residential development has exacerbated the need for lower-income housing, and has generated widespread efforts to link such needed residential development to non-residential development. Thus, nationwide, municipalities have attempted to shift the externalities of development to non-inclusionary developers. See, e.g., Alterman, “Evaluating Linkage and Beyond: Letting the Windfall Genie Out of the Exactions Bottle,” 34 Wash. U.J. Urb. & Contemp. L. 3, 7 (1988).

*564 The broad concept of linkage describes any of a wide range of municipal regulations that condition the grant of development approval on the payment of funds to help finance services and facilities needed as a result of development. In the context of developing affordable housing, linkage refers to any scheme that requires developers to mitigate the adverse effects of non-residential development upon the shortage of housing either indirectly, by contributing to an affordable-housing trust fund, or directly, by actually constructing affordable housing. See A. Mallach, Inclusionary Housing Programs: Policies and Practices (1985). The idea of linking community housing goals with non-residential real estate development has inspired new governmental efforts to address the lower-income housing crisis. See Smith, “From Subdivision Improvement Requirements to Community Benefit Assessments and Linkage Payments: A Brief History of Land Development Exactions,” 50 Law & Contemp. Probs. 5 (1987); Gallogly, “Opening the Door for Boston’s Poor: Will ‘Linkage’ Survive Judicial Review?”, 14 Environmental Affairs 447 (1987).

Affordable-housing linkage ordinances are the most recent phenomenon in this area. See, e.g., Connors & High, “The Expanding Circle of Exactions: From Dedication to Linkage,” 50 Law & Contemp. Probs. 69 (1987). Such ordinances link or couple the right to engage in non-residential development to the provision of affordable housing. The ordinances at issue in this appeal are all examples of linkage. Each requires certain developers to help finance the construction of affordable housing either as a condition for receiving permission to build or in order to obtain some type of density bonus. Only Holmdel’s ordinance gives developers the option of actually constructing affordable-housing units.

The linkage trend has gained momentum during the past decade. See Symposium: Land-Use, Zoning, and Linkage Requirements Affecting the Pace of Urban Growth, 20 Urban Lawyer 513 (1988); Bauman & Ethier, “Development Exactions and Impact Fees: A Survey of American Practices,” 50 Law & *565 Contemp. Probs. 51 (1987). 1 The fairness and legality of linkage have inspired much debate among legal scholars, the business community, and the judiciary. Proponents, including amicus curiae Princeton Township, forcefully argue that by attracting new residents to an area, commercial developments increase the need for housing in general and thus for affordable housing. To the extent that the additional need for housing is not met with increased supply, housing prices will be pushed upward, exacerbating both the need for, and unattainability of, lower-income housing. Therefore, it is appropriate for municipalities to charge commercial developers with a portion of the responsibility for creating more affordable-housing units. Gruen, “The Economics of Requiring Office-Space Development to Contribute to the Production and/or Rehabilitation of Housing,” in D. Porter, Downtown Linkages (1985); cf. Surenian, “Mount Laurel II and the Fair Housing Act,” 319-23 (NJICLE 1987) (advocating linkage fees in theory but cautioning against fees in practice due to “ineffectiveness of bureaucracy” and propensity of municipalities to evade fair-share obligations). In addition, linkage advocates stress the need to consider the effect of all development on the finite supply of land. Land must be viewed as an essential but exhaustible resource; any land that is developed for any purpose reduces the supply of land capable of being used to build affordable housing. See Major, “Linkage of Housing and Com *566 mercial Development: The Legal Issues,” 15 Real Estate L.J. 328, 331 (1987). The scarcity of land as a resource bears on the opportunity and means to provide affordable housing. See Hills Dev. Co. v. Bernards Township, supra, 103 N.J. at 61, 510 A. 2d 621; Tocco v. New Jersey Council on Affordable Hous., 242 N.J.Super. 218, 221, 576 A.2d 328 (App.Div.), certif. denied, — N.J. -, — A.2d-(1990).

Amicus curiae the Public Advocate argues that commercial developers ought not be exempt from the financial burden of Mt. Laurel compliance because their projects, like those of multifamily residential developers, consume land, water, and sewerage capacity that could otherwise be devoted to or held for the satisfaction of the municipality’s lower-income-housing obligation. This Court has implicitly recognized that unrestrained nonresidential development can itself deepen the shortage of affordable housing. Mt. Laurel II, supra, 92 N.J. at 210 n. 5, 456 A.2d 390.

III.

With that background, we address the issue whether the development-fee ordinances are statutorily authorized. The focal question in this case is whether any statutory grant of power to municipalities can fairly be construed as impliedly authorizing the affordable-housing development fees imposed by these ordinances. We are guided by the principle that municipalities possess “only such rights and powers as have been granted in express terms, or arise by necessary or fair implication, or are incident to the powers expressly conferred, or are essential to the declared objects and purposes of the municipality.” Edwards v. Mayor of Moonachie, 3 N.J. 17, 22, 68 A.2d 744 (1949). The authority delegated to them, however, is to be construed liberally in their favor. N.J. Const. of 1947 art. IV, § 7, para. 11; Moyant v. Borough of Paramus, 30 N.J. 528, 154 A.2d 9 (1959). We thus approach the issue in light of the statutory authority of the FHA, which deals expressly with *567 affordable housing. That explicit authority, however, must be comprehended in terms of the traditional zoning powers of municipalities, as reflected in the MLUL and the general police powers of municipal government. Hence, although it is the FHA that deals directly with affordable housing, it is instructive to consider initially the zoning and police powers.

A.

The MLUL, which expresses the zoning powers delegated to local government, seeks generally “[t]o encourage municipal action to guide the appropriate use or development of all lands in this State, in a manner which will promote the public health, safety, morals, and general welfare.” N.J.S.A. 40:55D-2. “It is plain beyond dispute that proper provision for adequate housing of all categories of people is certainly an absolute essential in promotion of the general welfare required in all local land use regulation.” Mt. Laurel I, supra, 67 N.J. at 179, 336 A.2d 713.

Affordable housing is a goal that is no longer merely implicit in the notion of the general welfare. It has been expressly recognized as a governmental end and codified under the FHA, which is to be construed in pari materia with the MLUL. See Hills Dev. Co., supra, 103 N.J. at 33-34, 510 A.2d 621. See discussion infra at 573-76. The FHA specifies that a municipality’s zoning power be used to create a housing element “designed to achieve the goal of access to affordable housing to meet present and prospective housing needs, with particular attention to low and moderate income housing.” N.J.S.A. 52:27D-310. Also, the municipality must “establish that its land use and other relevant ordinances have been revised to incorporate” provisions for a realistic opportunity for the development of lower-income housing. N.J.S.A. 52:27D-311a. We thus have no doubt that provision of lower-income housing is one of the purposes of zoning incorporated by reference into the zoning enabling act.

*568 That understanding is not remarkable. Our zoning law “permits any reasonable scheme which comports with the legislative standards and thus leaves ample room for new ideas.” Kozesnik v. Montgomery Township, 24 N.J. 154, 169, 131 A.2d 1 (1957). Courts consistently have taken an expansive view of the zoning power, subjecting it only to the overarching requirement of serving the general welfare. E.g., Village of Belle Terre v. Boraas, 416 U.S. 1, 94 S.Ct. 1536, 39 L.Ed.2d 797 (1974); Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 47 S.Ct. 114, 71 L.Ed. 303 (1926). Housing needs are clearly related to the general welfare under the zoning laws. Berman v. Parker, 348 U.S. 26, 33, 75 S.Ct. 98, 102, 99 L.Ed. 27, 38 (1954) (“We do not sit to determine whether a particular housing project is or is not desirable. The concept of the public welfare is broad and inclusive”).

Further, the broad reach of the zoning authority arises from its character as an aspect of local government’s police powers. It has repeatedly been acknowledged that the zoning power is part of the police power. E.g., Mt. Laurel II, supra, 92 N.J. at 208, 456 A.2d 390; Mt. Laurel I, supra, 67 N.J. at 174, 336 A.2d 713. The police power enables a municipality to take such actions “as it may deem necessary and proper for the good government, order and protection of persons and property, and for the preservation of the public health, safety and welfare of the municipality and its inhabitants.” N.J.S.A. 40:48-2. A municipality in the exercise of its police power clearly may seek to address housing problems. See, e.g., Dome Realty, Inc. v. City of Paterson, 83 N.J. 212, 416 A.2d 334 (1980) (certificate of occupancy could be used to enforce housing standards); Inganamort v. Borough of Fort Lee, 62 N.J. 521, 303 A.2d 298 (1973) (rent control); Apartment House Council v. Mayor of Ridgefield, 123 N.J.Super. 87, 301 A.2d 484 (Law Div.1973) (owners of multiple dwellings required to post security with a municipal agency empowered to repair emergency housing conditions), aff 'd o.b., 128 N.J.Super. 192, 319 A.2d 507 (App.Div.1974).

*569 In addition to advancing a recognized purpose of zoning, a zoning ordinance must bear a “real and substantial relationship to the regulation of land.” State v. C.I.B. Int'l, 83 N.J. 262, 271 n. 4, 416 A.2d 362 (1980). Defendants here contend that a zoning ordinance imposing a development fee to provide affordable housing can be considered a form of inclusionary zoning and thus bears a real and substantial relationship to the regulation of land. The Appellate Division disagreed, ruling that “[a] mandatory development fee [as opposed to a voluntary-development fee] applied indiscriminately as a price to build within the municipality has no real and substantial relationship to the regulation of land.” 232 N.J.Super. at 194-95, 556 A.2d 1236.

In Mt. Laurel II, we held that inclusionary-zoning devices that serve the purpose of providing affordable housing within a region bear a real and substantial relationship to the regulation of land and the zoning power. 92 N.J. at 271, 456 A.2d 390. The fact that defendants seek to accomplish the general-welfare goal of affordable housing by development fees rather than by mandatory set-asides does not negate a “real and substantial relationship” of such development fees to the regulation of land. Although development-fee measures are not site-specific in the same sense as mandatory set-asides, they implicate land-related regulations because they are specifically designed and applied to aid in the creation of affordable residential housing. See N.J.S.A. 52:27D-312 (municipality may satisfy portion of its fair-share requirement through “regional contribution agreement” with another municipality).

Development fees expressly dedicated to lower-income housing will thus affect “the nature and extent of the uses of land and of buildings and structures thereon,” N.J.S.A. 40:55D-2k. As compared with relatively random and rigid set-aside zoning, development fees provide a more flexible and comprehensive approach that will encourage the appropriate use and development of land within a municipality to satisfy that municipality’s *570 fair-share housing obligation. Mt. Laurel II, 92 N.J. at 214-15, 456 A.2d 390.

We have also required that a zoning ordinance advance an authorized purpose “in a manner permitted by the legislature.” C.I.B. Int’l, supra, 83 N.J. at 271 n. 4,