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New Jersey Economic Stimulus Act of 2009 Funding for Development Projects

By Graham M. Catlin
August 2009
People: David J. Rabinowitz
The New Jersey Economic Stimulus Act of 2009 (the “Act”), signed into law by Governor Jon Corzine on July 27, 2009, contains several provisions designed to encourage real estate development by providing new sources of funding and eliminating certain associated fees. Specifically, the Act establishes the Economic Redevelopment and Growth Grant (“ERGG”) program, expands the Urban Transit Hub Tax Credit (“UTH Credit”) program, and provides for a moratorium and refunds for the 2.5 percent affordable-housing development fee imposed on certain nonresidential development projects.

Economic Redevelopment and Growth Grant Program: The Act establishes the ERGG program, which is designed to provide funding to close a gap in project financing through incentive grants for redevelopment projects located in certain areas. Eligible projects include those located in Planning Areas 1 and 2 in the State Development and Redevelopment Plan, as well as certain transit villages, federally owned land approved for military base closure and certain other areas. To be eligible for the ERGG program, developers must contribute at least 20 percent of the necessary capital. ERGG grant agreements are limited to 20 percent of the total project cost, and with payment periods up to 20 years in length. The ERGG program will be funded by incremental or project-specific increases in state and local tax revenues, replacing the tax increment financing currently provided through Revenue Allocation Districts. Grants are paid directly to developers, to the extent that designated incremental tax revenues are received in any year, or can be pledged to a lender to increase project financing up front. ERGG grants can be made either by the municipality (funded out of incremental property taxes and certain other local taxes) or by the state (funded out of incremental income taxes and certain other state taxes).

Expansion of Urban Transit Hub Tax Credit Program: The Act expands the UTH Credit program to include certain qualified residential projects, as well as nonresidential development projects on property: (1) located within one-half mile of a light rail station; (2) located within one-half mile of one of the first two subway stops on the Newark Subway line after Penn Station; (3) located within one mile of rail stations if the property is in a qualified municipality under the Municipal Rehabilitation and Economic Recovery Act; or (4) adjacent to, or connected by rail spur to, a freight rail line, if the business utilizes that line for loading and unloading freight cars on trains. The UTH Credit can be applied against corporate business tax or insurance premium tax liabilities. The amount of the credit equals 1/10th of the capital investment in the project per year for ten years. For example, a total capital investment of $10 million would generate a credit of $1 million each year for ten years. To be eligible, the owner of a qualified business facility must meet a minimum capital investment requirement of $50 million, reduced from $75 million. For a tenant occupying a portion of a qualified business facility, the minimum capital investment requirement is $17.5 million, reduced from $25 million. Further, an eligible business must have at least 250 full-time employees. This employee requirement may be met in the aggregate by separate tenants of a qualified business facility. Companies with less than 200 employees in “new full-time positions”, defined as positions created by the business that did not previously exist in the State, are subject to a 20 percent reduction of the UTH Credit. If an eligible company does not have enough tax liability to offset the UTH Credit for a particular year, the credit may be sold for 75 to 100 percent of its value. The Act limits the total tax credits to be issued under the UTH Credit program to $1.5 billion.

Moratorium and Refund of Non-Residential Development Fees: The Act exempts nonresidential developers of certain projects from an affordable-housing fee equal to 2.5 percent of the equalized assessed value of land and improvements. To be eligible for the exemption, a project must obtain preliminary or final site plan approval by July 1, 2010, and secure a building permit before July 1, 2013. Further, developers who have paid such fees since July 17, 2008 may receive a full or partial refund for projects meeting the exemption requirements. Refund claims must be submitted to municipalities by November 24, 2009.

Developers should review the eligibility requirements outlined above to determine whether they may take advantage of the new incentives provided by the Act. For the ERGG program, developers should determine whether true gap financing is necessary to complete the project. For the UTH Credit program, developers should review locations of projects to determine proximity to light rail stations and freight lines, as well as capital investment amounts. Finally, developers that have paid, or anticipate paying, non-residential affordable housing development fees should make note of the deadlines for site plan approval and building permits, as well as the deadline for requesting refunds of such fees.

For questions regarding the information contained in this G&S Advisory, please contact your usual Goulston & Storrs attorney or:

David J. Rabinowitz
(212) 878-5134

This G&S Advisory was written by Graham M. Catlin, an associate in the firm's Real Estate group.

This advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

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