IN RE 2003 LOW INCOME HOUSING TAX

• Decision Date: 28 April 2004
• Citation: 848 A.2d 1,369 N.J. Super. 2
• Parties: In re ADOPTION OF the 2003 LOW INCOME HOUSING TAX CREDIT QUALIFIED ALLOCATION PLAN.
• Court: New Jersey Superior Court

848 A.2d 1

369 N.J. Super. 2

In re ADOPTION OF the 2003 LOW INCOME HOUSING TAX CREDIT QUALIFIED ALLOCATION PLAN.

Superior Court of New Jersey, Appellate Division.

Argued March 15, 2004.

Decided April 28, 2004.

Peter J. O'Connor argued the cause for appellants Fair Share Housing Center, Camden County Branch of N.A.A.C.P., Southern Burlington County N.A.A.C.P., and Camden City Taxpayers Association (Fair Share Housing Center, attorneys; Mr. O'Connor and Kevin D. Walsh, on the brief).

Carol Johnston, Senior Deputy Attorney General, argued the cause for respondent New Jersey Housing and Mortgage Finance Agency (Peter C. Harvey, Attorney General, attorney; Patrick DeAlmeida, Deputy Attorney General, of counsel; Ms. Johnston and Kimberly A. Sked, Deputy Attorney General, on the brief).

Kenneth Zimmerman argued the cause for amici curiae New Jersey Institute for Social Justice, Coalition for Affordable Housing and the Environment, Housing and Community Development Network, and New Jersey Public Policy Research Institute (Gibbons, Del Deo, Dolan, Griffinger & Vecchione, attorneys; Lawrence S. Lustberg, Philip G. Gallagher and Mr. Zimmerman, of counsel and on the brief).

William H. Buckman, Rutland, VT, attorney for amicus curiae Lawyers' Committee for Civil Rights Under Law (Mr. Buckman, of counsel and on the brief).

Norris, McLaughlin & Marcus, Bridgewater, attorneys for amicus curiae Local Initiatives Support Corporation (Edward G. Sponzilli, of counsel; Haekyoung Suh, on the brief).

Carl D. Poplar, Turnersville, attorneys for amici curiae Professor Myron Orfield of the Institute on Race and Poverty at the University of Minnesota Law School and Professor John A. Powell of the Kirwan Institute for the Study of Race and Ethnicity of Ohio State University (Mr. Powell, Mr. Orfield and Marguerite L. Spencer, on the brief).

Before Judges HAVEY, NEWMAN and FALL.

The opinion of the court was delivered by

HAVEY, P.J.A.D.

In this appeal, four public interest organizations challenge the validity of the 2003 Qualified Allocation Plan (QAP) adopted by respondent New Jersey Housing Mortgage Finance Agency (HMFA). A QAP is the means by which a state housing credit agency administers the Low Income Housing Tax Credit (LIHTC) program created by federal law. 26 U.S.C.A. § 42. Appellants claim that, because the 2003 QAP funds affordable housing in urban areas with a high percentage of minority residents, it encourages racial segregation in violation of the Federal Fair Housing Act, 42 U.S.C.A. §§ 3601 to 3609 (Title VIII of the Civil Rights Act of 1968), attendant Title VIII and Internal Revenue Service (I.R.S.) regulations, and declared federal housing policy. Appellants also contend that the 2003 QAP violates the Mount Laurel¹ doctrine, New Jersey's Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49, and sections of the New Jersey Constitution which prohibit segregation of public schools, and require that the Legislature provide a thorough and efficient education. Finally, appellants contend that the HMFA violated the Administrative Procedure Act (APA), N.J.S.A. 52:14B-1 to -14, in the manner by which it adopted the 2003 QAP.

We affirm. HMFA has a duty to administer its housing and financing programs in a manner affirmatively to further the policies of Title VIII. However, the agency's "affirmatively to further" duty must be defined congruent with its express statutory powers and far-reaching housing agenda as defined under federal and state law. See 26 U.S.C.A. § 42(m)(1)(B) and (C), and the New Jersey Housing and Mortgage Finance Agency Law of 1983, N.J.S.A. 55:14K-1 to -81. Considering those powers and goals, we hold that HMFA has satisfied its "affirmatively to further" duty in adopting the 2003 QAP. We also conclude that the 2003 QAP does not violate the New Jersey Constitution, the Mount Laurel doctrine or the LAD. Finally, we reject appellants' contention that HMFA violated the APA in the manner by which it adopted the 2003 QAP.

Although this is an appeal from the 2003 QAP, the relevant procedural history dates back to 2002, when appellants filed notices of appeal challenging the 2002 QAP and HMFA's award of tax credits to specific projects located primarily in urban areas. While those appeals were pending, HMFA proposed regulations for the 2003 QAP. 35 N.J.R. 913(a) (Feb. 18, 2003).

The 2003 QAP was reproposed on April 21, 2003, following receipt of comments. 35 N.J.R. 1616(a).

On June 25, 2003, HMFA denied appellants' request for a trial-type hearing before the Office of Administrative Law (OAL). On June 19, 2003, HMFA adopted the 2003 QAP, including lengthy responses to appellants' comments and submissions. 35 N.J.R. 3298 to 3342. The regulations became effective July 21, 2003. 35 N.J.R. 3298.

Appellant Fair Share Housing Center thereupon filed a notice of appeal on September 4, 2003, challenging the 2003 QAP. By separate opinions, and with the consent of the parties, we dismissed the prior appeals from the 2002 QAP. However, the parties agreed that the prior appeals had raised questions "that are both important to the public and likely to recur." In our opinions dismissing the appeals, we held that "[t]he issues of statutory interpretation and of important public interest" may be decided in the challenge to the 2003 QAP: Thereafter, by separate orders, we granted Fair Share Housing Center's motion to add as additional appellants the Camden County N.A.A.C.P., the Burlington County N.A.A.C.P., and the Camden County Taxpayers Association.

I

First enacted in 1986 (Pub.L. No. 99-514, 100 Stat. 2189), 26 U.S.C.A. § 42 provides an incentive for the construction and rehabilitation of low income rental housing by lowering its overall cost through the use of tax credits to developers and owners of qualified rental projects. David Phillip Cohen, Improving the Supply of Affordable Housing: The Role of the Low-Income Housing Tax Credit, 6 J.L. & Pol'y 537, 541 (1998). ² The program has since become the largest federal subsidy for the development and rehabilitation of affordable housing. Megan J. Ballard, Profiting From Poverty: The Competition Between For-Profit And Nonprofit Developers For Low-Income Housing Tax Credits, 55 Hastings L.J. 211, 212 (2003). To qualify, a project may set aside 20% or more of the building's residential units to renters whose income is 50% or less than the area's median growth income (the 20-50 test), or set aside at least 40% or more of its units to tenants whose incomes are no greater than 60% of the area's median gross income (the 40-60 test). Id. at 229-230; 26 U.S.C.A. § 42(g)(1). To be eligible for the credit, the building must be affordable to low-income tenants for an extended period of time, generally fifteen years. 26 U.S.C.A. § 42(h)(6)(D).

These tax credits are allocated to the various states according to their population. 26 U.S.C.A. § 42(h)(3)(C). "The program is popular and desirable for developers of low income housing and there is competition for the limited number of awards available." In re Tax Credit of Pennrose Props., supra, 346 N.J.Super. at 485, 788 A.2d 787. See also Ballard, supra, 55 Hastings L.J. at 213 (noting the "stiff competition" for tax credits). The tax credit program is administered by a state's housing credit agency, 26 U.S.C.A. § 42(m), which in New Jersey is the HMFA. The housing credit agency must adopt a "qualified allocation plan." 26 U.S.C.A. § 42(m)(1)(A). QAPs must include certain preferences and selection criteria. Notably, the projected racial composition of the project and surrounding neighborhood are not among those criteria. Specifically, a QAP means "any plan":

(i) which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions,

(ii) which also gives preference in allocating housing credit dollar amounts among selected projects to—

(I) projects serving the lowest income tenants,

(II) projects obligated to serve qualified tenants for the longest periods, and

(III) projects which are located in qualified census tracts (as defined in subsection (d)(5)(C)) and the development of which contributes to a concerted community revitalization plan, and

(iii) which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of this section and in notifying the Internal Revenue Service of such noncompliance which such agency becomes aware of and in monitoring for noncompliance with habitability standards through regular site visits.

(C) Certain selection criteria must be used. The selection criteria set forth in a qualified allocation plan must include—

(i) project location,

(ii) housing needs characteristics,

(iii) project characteristics, including whether the project includes the use of existing housing as part of a community revitalization plan,

(iv) sponsor characteristics (v) tenant populations with special housing needs,

(vi) public housing waiting lists,

(vii) tenant populations of individuals with children, and

(viii) projects intended for eventual tenant ownership.

[26 U.S.C.A. § 42(m)(1)(B) and (C).]

Each year HMFA adopts a QAP in the form of regulations establishing funding cycles, and decides the amount of credits to be made available in each cycle. N.J.A.C. 5:80-33.3. Significant to this appeal, there are a number of differences between the 2002 QAP and the 2003 QAP. In 2002, these cycles were as follows: (1) the "Urban Cycle," N.J.A.C. 5:80-33.4 (2002); the "Suburban/Rural Cycle," N.J.A.C. 5:80-33.5 (2002); the "HOPE VI Cycle," which consists of projects located in municipalities on the Urban Cycle list which utilize "HOPE VI" funds, N.J.A.C. 5:80-33.6 (2002);³ the "Special Needs Cycle," which refers to projects which address the housing needs of the homeless, people with developmental disabilities, or victims of domestic...