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Incentives overhaul aims to broaden housing subsidies beyond geographic limits of previous programs

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Assemblyman Albert Coutinho unveiled the legislation consolidating the state's menu of incentive programs.
Assemblyman Albert Coutinho unveiled the legislation consolidating the state's menu of incentive programs. - (Aaron Houston / NJBIZ)

The idea of overhauling New Jersey's package of business incentives has been widely praised in the business community, but the proposed changes could have a significant impact on how — and where — the state supports residential development.

Assemblyman Albert Coutinho (D-Newark) last month unveiled his highly anticipated Economic Opportunity Act of 2013, which would consolidate the state's five incentive programs into two. The Grow New Jersey grant program would serve as the main business and job-creation incentive, while the Economic Redevelopment and Growth tax increment financing program would help developers.

Pete Kasabach, executive director of New Jersey Future, said he's generally supportive of the idea of overhauling incentives, but he's concerned Coutinho's bill would harm smart-growth residential development, as it replaces the Urban Transit Hub tax credit's mandate to incent urban redevelopment.

"If the bill were passed as is, there would at least be some money for housing, but it wouldn't be to the extent that was under Urban Transit Hub, and it also isn't as targeted," he said. "In the bill, it gets spread out very broadly and it's not targeted toward urban areas that need it most."

Kasabach wants the state to direct growth toward the so-called planning areas 1 and 2 — the regions identified in a 2001 state plan as "areas for growth." Area 1 is a mostly urban zone, while area 2 is suburban, but with a reliable transportation infrastructure. Kasabach said developers generally are focusing on such areas to build walkable living and working spaces, but there are a handful of locations that need extra help to draw investment.

"One of the really important components of the Urban Transit Hub tax credit was helping some of these emerging marketplaces get residential projects moving, which has been shown to be a catalyst for getting the market moving," he said.

The Urban Transit Hub program was limited to nine cities, but under Coutinho's bill, ERG money could be used for residential projects in suburban, rural and environmentally sensitive areas, provided those locations meet certain criteria, such as being designated growth or high-poverty areas. The new ERG, though, would still dedicate the lion's share of its $750 million residential set aside to the nine Urban Transit Hub cities and to Hurricane Sandy disaster recovery areas.

Ron Beit, managing director at RBH Group — the lead developer of the Teachers Village project in Newark — said Coutinho's bill would still help urban areas like Trenton, Camden and Newark.

"Until they are strong and mature enough as markets to attract standalone private development capital, they need a boost from a comprehensive, streamlined statewide incentives plan, and this bill provides just that kind of boost," he said.

Coutinho said he's open to discussions and potential amendments. He also agrees that a targeted residential program is necessary, but said the state can't ignore other areas where growth makes sense.

"The entire bill tries to address ongoing issues for multiple stakeholders and legislators who feel we need to do more than just in the Urban Transit Hub areas," he said.

By eliminating Urban Transit Hub credits in favor of ERG grants, the bill also would change the way money is allocated.

Whereas Urban Transit Hub reimbursed up to 100 percent of qualified capital costs, provided projects were worth more than $50 million and met job-creation targets, the revamped ERG program would pay up to 35 percent of eligible costs, but only if the developer can prove they need the money.

Ted Zangari, a real estate attorney with Sills, Cummis & Gross, said the new rules ensure money will go where it's needed most.

"The beauty of the developer incentive is that there is a subsidy available … only where a developer demonstrates to the EDA that, after exhausting all other sources of public and private financing, a nagging construction gap persists that must be filled in order for the project to move forward," Zangari said.

Such gaps could exist, for example, because a project calls for a prohibitively expensive parking deck or exorbitant brownfield remediation, or in the case of market-rate rents not covering the cost of building in the area, Zangari said.

Zangari, who helped craft the legislation as part of his role with the Smart Growth Economic Development Coalition, said the geographic expansion of the program is a necessary step.

"We see it not as a tool that will encourage sprawl, but rather an incentive that will spur the reuse of existing buildings in the walkable downtowns of towns such as Newton, Hackettstown and Netcong," he said. "Not every New Jerseyan needs to hop in a car or even on a train and commute to the eastern seaboard of our state."

State Sen. Raymond Lesniak (D-Union) is sponsoring the Senate version of the bill. He said the process remains fluid, and expects the bill "to be the subject of a lot of discussion, a lot of input, and no doubt a fair amount of amendments as we go through the legislative process."

What won't change, Coutinho said, is his desire for a more closely focused incentive structure, one that will help grow jobs and make New Jersey more attractive.

"Here's the thing: I think residential's a piece," he said. "I don't want to call it secondary, but there's a place for it. My top priority is making sure that our job and developer incentives stay competitive with, if not ahead of, other states."

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

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