Recent NJ Legislative Activity on Real Estate Tax Credits

The legislative process in New Jersey becomes very interesting in the month of June when all legislative and executive eyes focus on the budget proposal and deals may be struck on other pieces of legislation to build support for the budget.  This month should prove to be no exception.  While we will not discuss the budget process as it affects New Jersey tax credits, the negotiations over the budget could have a direct impact on some key programs.  This article will focus on updates regarding bills related to programs that we have previously discussed in earlier posts and in the In the Zone publication.

We previously reported on legislation which would raise the maximum allowable tax credits under the Urban Transit Hub Tax Credit Act and under the Grow New Jersey Assistance Act.  These bills, A2242 and S1562, seek to increase the UTHTC Credits from 1.5 billion dollars to 2.5 billion dollars and tax credits under the Grow New Jersey Assistance Act from 200 million dollars to 400 million dollars.  The Assembly bill, A2442, has not received any attention since its introduction in February of this year.  On the other hand, the Senate version, S1562, sailed through two committees and was reported favorably by the second committee in early March of this year.  Until the end of last month, that bill sat but on May 31, it was passed unanimously by the Senate 35 to 0.  Earlier this month, the Senate bill was received by the Assembly and referred to the Assembly Commerce and Economic Development Committee.

It is anticipated that A2442 will receive favorable attention by the Assembly Committee.  The UTHTC program has been highly successful and the tax credits it has generated have been a significant component of capitals stacks in numerous projects in several of the eligible municipalities.  However, the program has been a victim of its success as the eligible credits have been gobbled up and presumably worthy projects may be at risk for lack of credits. 

We expect favorable action by the Assembly.  If that happens then, a bill will arrive at the Governor’s desk accompanied by vigorous lobbying behind the scenes to urge the Governor to sign the bill.  While there are other pending bills that seek to either tweak or radically change this tax credit program, they seem to be garnering little attention at this time.  One significant oversight is the disparity in distribution of urban transit hub tax credits to the eligible municipalities.  Whether that New Jersey legislature will address the historic disparity remains remains an open question.   For more information on these tax credit laws, please see our prior article.

A1450 and S141, the New Jersey Historic Property Reinvestment Act, has not progressed in either house, a curious result.  Last year, the identical legislation made it to the Governor’s desk only to be vetoed. As the bill presently stands it seeks to aid many without consideration of economic need.  Perhaps with a more surgical approach -- for example, permitting tax credits in urban cities in need of redevelopment -- it will draw favorable action. For more information on this proposal, please consult our prior article.

In view of our readership, two pieces of legislation proposing tax incentives to “distressed shopping centers” deserve a quick note.  These bills are proposing tax incentives to encourage revitalization of partially or completely vacant shopping centers.  A204 and S1002 propose a tax credit of $15,000 up to 50% of the corporate business tax liability while the other, A434, proposes an array of tax incentives including tax credits, rebates, reimbursements, exemption and skill training to tenants of eligible shopping centers. In the case of all of this legislation, there are prerequisites to eligibility.  We will follow their progress and, if warranted, report more thoroughly in the near future.

For further information, contact Jeffrey N. Hall or Daniel V. Madrid.

Complete Redesign of Pennsylvania's Redevelopment Assistance Capital Program

The Pennsylvania Governor's Budget Office announced yesterday that the Redevelopment Assistance Capital Program (RACP) will be completely redesigned. 

According to the Governor's Budget Office, the goals of the redesign are to:

  • To define the application process with published guidelines and procedures.
  • To implement merit-based evaluation and selection.
  • To promote transparency.
  • To maintain rigorous monitoring, measurement and reporting.

Semi-annual funding rounds will be held for the program and funding is approximated at $125 million each year, with funding awards made in April and October of each year.  Projects that are not "shovel-ready" within 365 days will be deferred to a later round.  Business plans for the first funding round of the new program must be submitted by June 29, 2012. 

Project selection will be through a scoring matrix based upon the following criteria:

  • jobs created or retained;
  • community impact;
  • strategic cluster for development;
  • financial impact / long-term sustainability; and
  • construction shovel readiness.

Further information on the redesign can be found on the Governor's Office of the Budget website, including copies of the new Application Handbook.

PA Superior Court Upholds Personal Liability Judgment Against Homebuilder

In an opinion filed on March 6, 2012, the Pennsylvania Superior Court decided the appeal of Bennett, et al. v. A. T. Masterpiece Homes, et al., No. 1302 MDA 2011.  At issue in Bennett was the question of whether a homebuilder could be found personally liable for breach of contract, breach of warranty, and  violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) resulting from defective construction work.  Let this case be a lesson to all homebuilders.

The Bennetts & the Hoefferles contracted with A.T. Masterpiece Homes for the construction of their respective residences in a York County, PA development.   During construction of the homes, both couples noticed numerous building deficiencies.  One of the named defendants was the managing member of A.T. Masterpiece Homes, who was the couples’ primary contact during the construction process.  He assured the couples regarding the quality of the work on their homes.  Such assurances were specific, direct, and often in the form of personal guarantees.  Once construction finished, the Bennetts and the Hoefferles discovered their newly-constructed homes were in various states of disrepair and structural failure.

 

At the lower court, the jury found A.T. Masterpiece and the managing member, individually, liable for breach of contract, breach of warranty, and violations of the UTPCPL.  Further, the jury concluded that the managing member’s representations and guarantees regarding the homes exposed him to personal liability.  The case then moved to the damages phase, where the jury found the managing member liable to the Hoefferles for $26,000.00 and to the Bennetts for $85,000.00.  The court doubled the damages, pursuant to the UTPCPL, and assessed counsel fees of $3,250.00.  As a result, the total judgment against the managing member was $173,250.00 for the Bennetts and $55,250.00 for the Hoefferles.

 

The managing member argued he should be shielded from personal liability because he was at all times acting only as an agent on behalf of a limited liability corporation, A.T. Masterpiece, and that any statements attributed to him (such as “I will take care of it” or “I guarantee it”) were simply figures of speech and did not amount to an express assumption of personal liability.   

 

Nevertheless, the Court found that a person acting as an agent may assume personal liability on a corporate contract where he executes a contract in his own name or voluntarily undertakes a personal responsibility.  Although the couples officially contracted with A.T. Masterpiece, the managing member voluntarily assumed personal liability on the building contract when he guaranteed the final quality of the home.  His statements were intended to calm fears about the building deficiencies and reasonably led the couples to believe he would personally ensure the completed home was built properly.