In Your Opinion: Township Council Sets An Ominous Precedent

By Raleigh Steinhauer, Esq., Somerset.

The Township Council’s recent takeover of the Hamilton Street Special Improvement District sets an ominous precedent. And while the Council’s unprecedented actions may not technically be illegal (the point is debatable) they certainly violate the intention of the law.

The Hamilton Street Special Improvement District is a Special Improvement District (“SID”) created pursuant to state statue N.J.S.A. 40:56-65, et seq. According to the New Jersey Department of Community Affairs website, a SID “provides a mechanism for the businesses and property owners of a community to organize as a single entity, to raise funds for activities that enhance or expand upon municipal services, and through a District Management Corporation, to manage themselves to become a more effective destination for commerce.” Essentially, the SID allows the businesses of the area to operate like a mall managed by a single group rather than by each individual business on their own. Each business in the SID is specially assessed (basically an extra tax), and a District Management Corporation (“DMC”) decides how best to utilize the funds in order to economically improve the area. The DMC is a legally distinct entity with its own by-laws, policies and procedures made up principally of the business owners and other private sector stakeholders from the SID. The intention being that since the stakeholders of the SID have the greatest incentive to see the area economically improved, they are in the best position to manage the funds. The ability to manage the funds also operates as a trade-off for having to pay the special assessment.

The Council disbanded the previous DMC, known as the Hamilton Street Business & Community Corporation (“HSBCC”), and by ordinance formed a new DMC in their place. Instead however of being composed of the private sector stakeholders from the SID as the law intended, the new DMC is made up exclusively of the Council members themselves. The business owners of the SID in turn have been relegated to a mere advisory role.

In order to justify this usurpation of power, the Council asserted that the board of the former DMC was failing in their mission and not following their own by-laws. But even if that were true, the Council could have simply formed a new DMC of alternative business owners from the SID; a remedy relevant case law holds proper in analogous situations. To that end, a group of business owners from the SID came together and formed the Hamilton Street Merchants Association. The Council however rejected this alternative DMC and instead ordained themselves as such. Now, contrary to intention of the law, the Council, not the private sector stakeholders, is in control of the assessment funds.

It has been argued that the Council is merely serving as a placeholder, and that eventually a new DMC will be formed of business owners in the SID; or alternatively that the current advisory role of the business owners will blossom into a controlling one, with the Council simply providing oversight. But then why go through the trouble of taking over the SID; why not simply reconstitute a new DMC of business owners from the district, one of which has already been proposed. Perhaps the Council believes that it is better equipped to utilize the funds than the business owners themselves. But if that were true there would be no need for a SID in the first place. After all, as the NJ Supreme Court has said, SIDs are intended to achieve privately what government has been unsuccessful at doing alone. It should also be noted that some of the very same Council members who voted to disband the HSBCC due to mismanagement sat on its board.

Certainly the business owners on Hamilton Street are concerned about what the Council is up to and where this ultimately leads. Those outside of Hamilton Street should be concerned as well. What kind of precedent does this set? What are the implications for the future? Can the Council simply designate SIDs in the Township, specially assesses the business owners and then put themselves in charge of the funds to do with as they please? Will assessment funds that were intended for economic improvement now instead be used for political purposes? Whatever the case, the Council chose not to follow the law as intended and by doing so confiscated power for itself. And that is reason enough for suspicion.

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