Removes exemption from fair share housing obligation for urban aid municipalities in future rounds of affordable housing obligations.

A4766

ASSEMBLY, No. 4766

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED MARCH 19, 2026

Sponsored by:

Assemblyman� JOHN DIMAIO

District 23 (Hunterdon, Somerset and Warren)

Assemblywoman� DAWN FANTASIA

District 24 (Morris, Sussex and Warren)

Co-Sponsored by:

Assemblyman Scharfenberger

SYNOPSIS

���� Removes exemption from fair share housing obligation
for urban aid municipalities in future rounds of affordable housing
obligations.

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act
removing fair share obligation exemption for urban aid
municipalities and amending P.L.2024, c.2 and P.L.2008, c.46.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.� Section 7 of P.L.2024, c.2
(C.52:27D-304.3) is amended to read as follows:

���� 7.� a.� The present and
prospective fair share obligation for low- and moderate-income housing for each
municipality in the State shall be determined as described in this section.� In
addition, the March 8, 2018 unpublished decision of the Superior Court, Law Division,
Mercer County, In re Application of Municipality of Princeton shall be
referenced as to datasets and methodologies that are not explicitly addressed
by this section.� These determinations of municipal present and prospective
need shall be based on a determination of the present and prospective regional
need for low- and moderate-income housing, established pursuant to section 6 of
P.L.2024, c.2 (C.52:27D-304.2).� These calculations of municipal present and
prospective need shall use necessary datasets that are updated to the greatest
extent practicable.�

���� b.��� A municipality's present
need obligation shall be determined by estimating the existing deficient
housing units currently occupied by low- and moderate-income households within
the municipality, following a methodology comparable to the methodology used to
determine third round present need, through the use of datasets made available
through the federal decennial census and the American Community Survey,
including the Comprehensive Housing Affordability Strategy dataset thereof.�

���� c.���� A municipality's
prospective fair share obligation of the regional prospective need for the
upcoming 10-year round shall be determined in accordance with this subsection:�

���� (1)�
[
If a
municipality is a qualified urban aid municipality, the municipality shall be
exempt from responsibility for any fair share prospective need obligation for
the upcoming 10-year round.� For the purposes of this section, a municipality
is a qualified urban aid municipality if the municipality, as of July 1 of the
year prior to the beginning of a new round, is designated by the department,
pursuant to P.L.1978, c.14 (C.52:27D-178 et seq.), to receive State aid and the
municipality meets at least one of the following criteria:

���� (a)� The ratio of substandard
existing deficient housing units currently occupied by low- and moderate-income
households within the municipality, compared to all existing housing in the
municipality, is greater than the equivalent ratio in the region;

���� (b)� The municipality has a
population density greater than 10,000 persons per square mile of land area; or

���� (c)� The municipality has a
population density of more than 6,000, but less than 10,000 persons per square
mile of land area, and less than five percent vacant parcels not used as
farmland, as measured by the average of:

���� (i)� The number of vacant land
parcels in the municipality as a percentage of the total number of parcels in
the municipality; and

���� (ii)� The valuation of vacant
land in the municipality as a percentage of total valuations in the
municipality.
]

(Deleted by amendment, P.L.��� , c.��� (pending before the Legislature as
this bill).)

���� (2)� A municipality's
equalized nonresidential valuation factor shall be determined.� To determine
this factor, the changes in nonresidential property valuations in the
municipality, since the beginning of the round preceding the round being
calculated, shall be calculated using data published by the Division of Local
Government Services in the department.� For the purposes of this paragraph, the
beginning of the round of affordable housing obligations preceding the fourth
round shall be the beginning of the gap period in 1999.� The change in the
municipality's nonresidential valuations shall be divided by the regional total
change in nonresidential valuations to determine the municipality's share of
the regional change as the equalized nonresidential valuation factor.�

���� (3)� A municipality's income
capacity factor shall be determined.� This factor shall be determined by
calculating the average of the following measures:

���� (a)� The municipal share of
the regional sum of the differences between the median municipal household
income, according to the most recent American Community Survey Five-Year
Estimates, and an income floor of $100 below the lowest median household income
in the region; and

���� (b)� The municipal share of
the regional sum of the differences between the median municipal household
incomes and an income floor of $100 below the lowest median household income in
the region, weighted by the number of the households in the municipality.

���� (4)� A municipality's land
capacity factor shall be determined.� This factor shall be determined by
estimating the area of developable land in the municipality's boundaries, and
regional boundaries, that may accommodate development through the use of the
"land use / land cover data" most recently published by the
Department of Environmental Protection, data from the American Community Survey
and Comprehensive Housing Affordability Strategy dataset thereof, MOD-IV
Property Tax List data from the Division of Taxation in the Department of the
Treasury, and construction permit data from the Department of Community Affairs
and weighing such land based on the planning area type in which such land is
located.� After the weighing factors are applied, the sum of the total
developable land area that may accommodate development in the municipality and
in the region shall be determined.� The municipality's share of its region's
developable land shall be its land capacity factor.� Developable� land that may
accommodate development shall be weighted based on the planning area type in
which such land is located, as designated pursuant to P.L.1985, c.398
(C.52:18A-196 et seq.), P.L.1979, c.111 (C.13:18A-1 et seq.), or P.L.2004,
c.120 (C.13:20-1 et seq.), as follows:

���� (a)� Planning Area 1
(Metropolitan) shall have a weighting factor of 1.0;

���� (b)� Planning Area 2
(Suburban) shall have a weighting factor of 1.0;

���� (c)� Planning Area 3 (Fringe)
shall have a weighting factor of 0.5;

���� (d)� Planning Area 4 (Rural)
shall have a weighting factor of 0.0;

���� (e)� Planning Area 5
(Environmentally Sensitive) shall have a weighting factor of 0.0;

���� (f)� Centers in Planning Areas
1 and 2 shall have a weighting factor of 1.0;

���� (g)� Centers in Planning Areas
3, 4, and 5 shall have a weighting factor of 0.5;

���� (h)� Pinelands Regional Growth
Area shall have a weighting factor of 0.5;

���� (i)� Pinelands Town shall have
a weighting factor of 0.5;

���� (j)� All other Pinelands shall
have a weighting factor of 0.0;

���� (k)� Meadowlands shall have a
weighting factor of 1.0;

���� (l)� Meadowlands Center shall
have a weighting factor of 1.0;

���� (m)� Highlands Preservation
Area shall have a weighting factor of 0.0;

���� (n)� Highlands Planning Area
Existing Community Zone� and Highlands Designated Center in a
Highlands-conforming municipality, as determined by the Highlands Water
Protection and Planning Council pursuant to the list provided to the department
pursuant to subsection d. of section 3 of P.L.2024, c.2 (C.52:27D-304.1), shall
have a weighting factor of 1.0;

���� (o)� Highlands Planning Area,
State-designated sewer service area, Highlands municipality that is not a
Highlands-conforming municipality as determined by the Highlands Water
Protection and Planning Council pursuant to the list provided to the department
pursuant to subsection d. of section 3 of P.L.2024, c.2 (C.52:27D-304.1), shall
have a weighting factor of 1.0; and

���� (p)� All other Highlands
Planning Areas shall have a weighting factor of 0.0.

���� (5) The equalized
nonresidential valuation factor, income capacity factor, and land capacity
factor, determined in paragraphs (2), (3), and (4) of this subsection, shall be
averaged to yield the municipality's average allocation factor for distributing
gross regional prospective need to the municipality.� The regional prospective
need shall then be multiplied by the municipality's average allocation factor
to determine the municipality's gross prospective need for the 10-year round.

(cf: P.L.2024, c.2, s.7.)

���� 2.� Section 8 of P.L.2008,
c.46 (C.52:27D-329.2) is amended to read as follows:

���� 8. a. (1) A municipality that
is in the process of seeking compliance certification, has� obtained compliance
certification,
[
is
a qualified urban aid municipality, as determined pursuant to paragraph (1) of
subsection c. of section 7 of P.L.2024, c.2 (C.52:27D-304.3),
]
or that has
been so authorized by a court of competent jurisdiction, and which has adopted
a municipal development fee ordinance shall be authorized to impose and collect
development fees from developers of residential property, in accordance with
rules promulgated by the department.� Each amount collected shall be deposited
and shall be accounted for separately, by payer and date of deposit.

���� (2)� No later than 180 days
following the enactment of P.L.2024, c.2 (C.52:27D-304.1 et al.), any
municipality that is or has been authorized to impose and collect development
fees from developers of residential property, or payments in lieu of constructing
affordable housing, shall provide the Department of Community Affairs with a
detailed accounting of all such fees that have been collected and expended
since the inception of the municipal authorization to collect the fees.�

���� (3)� Beginning with the year
after the enactment of P.L.2024, c.2 (C.52:27D-304.1 et al.), by February 15,
every municipality that is or has been authorized to impose and collect
development fees from developers of residential property, or payments in lieu
of constructing affordable housing, shall provide the Department of Community
Affairs with a detailed accounting of all such fees that have been collected
and expended the previous year.

���� (4)� A municipality may not
spend or commit to spend any affordable housing development fees, including
Statewide non-residential fees collected and deposited into the municipal
affordable housing trust fund, without first obtaining the approval of the expenditure
as part of its compliance certification or by the department.� A municipality
shall include in its housing element and fair share plan adopted pursuant to
section 3 of P.L.2024, c.2 (C.52:27D-304.1) (pending before the Legislature as
this bill) a spending plan for current funds in the municipal affordable
housing trust fund and projected funds through the current round.� Review of
that spending plan for consistency with applicable law and the municipality's
housing element and fair share plan shall be part of the process specified in
section 3 of P.L.2024, c.2 (C.52:27D-304.1).� The department shall promulgate
updated regulations no later than nine months following the effective date of
P.L.2024, c.2 (C.52:27D-304.1 et al.) regarding the establishment,
administration, reporting, and enforcement of the expenditure of affordable
housing development fees by municipalities, which shall include establishing an
expedited process for approving spending plan expenditures for emergent
opportunities to create affordable housing after a municipality has obtained
compliance certification and procedures for monitoring the collection and
expenditure of trust funds.� The department shall develop and publish on the
department's Internet website a detailed summary of the municipal affordable
housing trust fund expenditures for each municipality and shall update each
summary on an annual basis.� As part of the regulations adopted pursuant to
this section and section 10 of P.L.2008, c.46 (C.52:27D-329.4), the department
shall adopt reporting requirements applicable to municipal affordable housing
trust funds to facilitate fulfillment of the department's obligations pursuant
to this section.� Municipalities may continue to rely on regulations on
development fees and spending plans previously adopted by the council until new
rules and regulations are adopted by the department.� The department shall have
jurisdiction regarding the enforcement of these regulations, provided that any
municipality which is not in compliance with the regulations adopted by the
department may be subject to forfeiture of any or all funds remaining within
its municipal trust fund.� Any funds so forfeited shall be deposited into the
"New Jersey Affordable Housing Trust Fund" established pursuant to section
20 of P.L.1985, c.222 (C.52:27D-320).

���� (5) The governing body of a
municipality which is spending or committing to spend affordable housing
development fees may provide, by ordinance , that the units of affordable
housing being developed or preserved pursuant to a housing project or program being
funded, in whole or in part, through affordable housing development fees shall
be exempt from real property taxation if the housing sponsor enters into an
agreement with the municipality for payments to the municipality in lieu of
taxes for municipal services.� Any such agreement may require the housing
sponsor to pay to the municipality an amount up to 20 percent of the annual
gross revenue from each housing project situated on such real property for each
year of operation of the agreement following the substantial completion of the
housing project.� Any such agreement shall require the housing sponsor to pay
the municipality an amount not less than the greater of four percent of the
annual gross revenue or the amount of the taxes attributable to the land value
component of the property comprising the project site for the year preceding
the recording of the mortgage, if applicable.� In the case of a property
assessed under the "Farmland Assessment Act of 1964," P.L.1964, c.48
(C.54:4-23.1 et seq.), the minimum amount the housing sponsor shall be required
to pay to the municipality shall be four percent of the annual gross revenue.�
For the purpose of this subsection, "annual gross revenue" means the
total annual gross rental or carrying charge and other income of a housing
sponsor from a housing project.� If an agreement is entered into from the date
of recording the mortgage on the housing project to the date of substantial
completion of the housing project, the annual amount payable to the
municipality as taxes or as payments in lieu of taxes in respect of the project
site shall not be in excess of the amount of taxes on the project site for the
year preceding the recording of the mortgage.� Within 30 calendar days
following: the effective date of an ordinance adopted by a municipal governing
body approving a tax exemption under this subsection, or the execution of a
financial agreement between a housing sponsor and a municipality entered into
pursuant to this subsection, whichever is later, the municipal clerk shall
electronically transmit a certified copy of the ordinance and the agreement to
the Director of the Division of Local Government Services in such a manner as
may be specified by the director.� An exemption from taxation provided in
accordance with this subsection shall not extend beyond the date on which an
eligible loan made for the project is paid in full.

���� (6)� Notwithstanding the
provisions of any law or regulation to the contrary, the governing body of a
municipality may agree to continue or grant a new tax exemption for a State,
federally, or municipally subsidized housing project beyond the date on which
an eligible loan made for the project is fully paid, or beyond the date upon
which a tax exemption expires, for any period the project remains subject to
affordability controls pursuant to:

���� (a) project-based federal
rental assistance, authorized pursuant to section 8 of the United States
Housing Act of 1937 (42 U.S.C. s.1437f), or other federal or State
project-based assistance;

���� (b) the Uniform Housing
Affordability Controls promulgated by the New Jersey Housing and Mortgage
Finance Agency; or

���� (c) the rent and income limits
established by the federal Low Income Housing Tax Credit program pursuant to
section 42 of the Internal Revenue Code (26 U.S.C. s.42).

���� b.��� A municipality shall
deposit all fees collected, whether or not such collections were derived from
fees imposed upon non-residential or residential construction into a trust fund
dedicated to those purposes as required under this section, and such additional
purposes as may be approved by the department.

���� c.���� (1) A municipality
[
, other than a
qualified urban aid municipality, as determined pursuant to paragraph (1) of
subsection c. of section 7 of P.L.2024, c.2 (C.52:27D-304.3)
]
may only
spend development fees for an activity approved by the department to address
the municipal fair share obligation or approved as part of compliance
certification.

���� (2)�� Municipal development
trust funds shall not be expended unless the municipality has immunity from
exclusionary zoning litigation at the time of the expenditure or said
municipality has previously collected such funds while under the protection of
presumptive validity or immunity from exclusionary zoning litigation and in
accordance with an approved spending plan.�
[
However,
municipal development trust funds may be expended by a municipality if the
municipality is a qualified urban aid municipality, as determined pursuant to
paragraph (1) of subsection c. of section 7 of P.L.2024, c.2 (C.52:27D-304.3),
with a development fee ordinance and spending plan approved by the department
or a court of competent jurisdiction, regardless of whether this approval
occurs prior to or subsequent to the effective date of P.L.2024, c.2
(C.52:27D-304.1 et al.).
]
�
Municipal development fee trust funds shall not be expended:

���� (a) to reimburse
municipalities for activities which occurred prior to the authorization of a
municipality to collect development fees; or

���� (b) (i) on administrative
costs, attorney fees or court costs to obtain a judgment of repose; (ii) to
contest a determination of the municipality's fair share obligation; or (iii)
on costs of any challenger in connection to a challenge to the municipality's
obligation, housing element, or fair share plan.

���� (3)�� A municipality shall set
aside a portion of its development fee trust fund for the purpose of providing
affordability assistance to low- and moderate-income households in affordable
units included in a municipal fair share plan, in accordance with rules of the
department.

���� (a)�� Affordability assistance
programs may include down payment assistance, security deposit assistance,
low-interest loans, common maintenance expenses for units located in
condominiums, rental assistance, and any other program authorized by the
department.

���� (b)�� Affordability assistance
to households earning 30 percent or less of median income may include buying
down the cost of low-income units in a municipal fair share plan to make them
affordable to households earning 30 percent or less of median income.� The use
of development fees in this manner shall not entitle a municipality to bonus
credits except as may otherwise be allowed by applicable precedent.

���� (4)�� A municipality may
contract with a private or public entity to administer any part of its housing
element and fair share plan, including the requirement for affordability
assistance, or any program or activity for which the municipality expends
development fee proceeds, in accordance with rules of the department.

���� (5)�� Not more than 20 percent
of the revenues collected from development fees shall be expended on
administration, in accordance with rules of the department. Such administration
may include expending a portion of its affordable housing trust fund on actions
and efforts reasonably related to the determination of its fair share
obligation and the development of its housing element and fair share plan
pursuant to paragraphs (1) and (2) of subsection f. of section 3 of P.L.2024,
c.2 (C.52:27D-304.1) and for expenses that are reasonably necessary for
compliance with the processes of the program, including, but not limited to,
the costs to the municipality of resolving a challenge under the program.

���� d.��� The department shall
establish a time by which all development fees collected within a calendar year
shall be expended; provided, however, that all fees shall be committed for
expenditure within four years from the date of collection.� A municipality that
fails to commit to expend the balance required in the development fee trust
fund by the time set forth in this section shall be required by the council to
transfer the remaining unspent balance at the end of the four-year period to
the "New Jersey Affordable Housing Trust Fund," established pursuant
to section 20 of P.L.1985, c.222 (C.52:27D-320), as amended by P.L.2008, c.46
(C.52:27D-329.1 et al.), to be used in the housing region of the transferring
municipality for the authorized purposes of that fund.

���� e.���� Notwithstanding any
provision of this section, or regulations of the department, a municipality
shall not collect a development fee from a developer whenever that developer is
providing for the construction of affordable units, either on-site or elsewhere
within the municipality.

���� This section shall not apply
to the collection of a Statewide development fee imposed upon non-residential
development pursuant to sections 32 through 38 of P.L.2008, c.46 (C.40:55D-8.1
through 40:55D-8.7) by the State Treasurer, when such collection is not
authorized to be retained by a municipality.

(cf: P.L.2024, c.6, s.2.)

���� 3. �This act shall take effect
immediately and apply to the fifth and each subsequent round of affordable
housing obligations.

STATEMENT

���� This bill would remove the
fair share housing exemption for urban aid municipalities.� Under current law, a
municipality that is designated as an urban aid municipality by the Department
of Community Affairs and fulfills certain requirements has a fair share housing
obligation of zero.� This exemption also qualifies an urban aid municipality
for certain use of municipal development fee revenues.� This bill would remove
the fair share housing obligation exemption for urban aid municipalities and the
qualification for certain use of municipal development fee revenues based
solely on urban aid municipality designation under the "Fair Housing
Act," P.L.1985, c.222 (C.52:27D-301 et al.).