Business owners file lawsuit against Rahway SID expansion

RAHWAY, NJ — Some of the property owners included in the recent expansion of the Special Improvement District will let a judge decide whether the city overstepped their legal bounds when approving the measure.

In the meantime, they are seeking an injunction preventing the city from collecting the SID levy until a ruling is handed down.
According to William Michelson, the Fanwood attorney who filed the lawsuit in Superior Court last week on behalf of the Friends of Rahway Business, LLC, the lawsuit could take as long as nine months to a year.

In December the city council approved a measure expanding the SID from 138 downtown properties to approximately 522, which included commercial buildings containing four or more apartments or office units.

At issue now is whether the city had the legal right to include 382 additional properties into the SID when many of these properties are not in the downtown and, in fact, are spread throughout the municipality.

The current SID has an assessed valuation of approximately $37 million, which the 138 property owners pay 35 cents for every $100 of assessed value. This generates about $130,000 annually but with the 382 properties included in the SID, would increase that number close to $700,000.

However, Rahway City Administrator Cheron Roundtree said at the Dec. 8 meeting she expected the SID tax levy would drop from 35 to 30 cents for every $100 of assessed value as a result of expanding the SID.

Roundtree explained that, as a result, the average SID property owner would be paying $981 a year, or an additional tax levy of $75 each month. This number, though, was not set in stone until the 2015 budget was approved by the city council.

The final hearing on the ordinance expanding the SID brought out property owners both for and against the measure, but it was evident some of the 382 property owners added to the SID were not happy about the decision. They made their objections known at the meeting, but after a lengthy public hearing the city council approved the expanded SID.

Officials explained at the time that the reasoning behind SID expansion was to provide improvements and benefits for everyone in Rahway and delaying the move would set things back as much as a year. The city expected to hire a commercial broker to look at the city overall, which the city administrator said would help fill vacancies in the downtown area and bring new businesses to Rahway.

The lawsuit, obtained by LocalSource, maintained the ordinance the Rahway City Council approved Dec. 8 expanding the SID beyond the boundaries laid down 20 years ago should be overturned for multiple reasons.

Specifically, the lawsuit contends that by the city adding approximately 382 properties that are not adjacent to one another, this created a “scattered-site SID.”

Michelson said there is no municipal, state or any other law that allows a municipality to create a “scattered SID,” let alone one that is not “contiguous” to the original 138 SID members located in the downtown.

The affected property owners also claimed the city failed to provide adequate legal notice to the 382 properties affected by the change.
The lawsuit contends property owners were entitled by law to at least ten days written notice with respect to either the first or second reading of the ordinance by regular certified mail, but when the ordinance came up before the city council for a first reading, many of the 382 property owners knew nothing about it.

Michelson explained in the legal brief submitted to the court that as a result, when the first reading took place at the Nov. 10, 2014 council meeting, affected property owners were prevented from addressing the council before action was taken.
The attorney also pointed out that following that meeting, the normal process of posting meeting minutes on the city website never occurred and as of the filing of the lawsuit last week, still had not been posted.

The lawsuit also noted that when the proposed ordinance appeared on the agenda for a second reading Dec. 8, 2014, many, and perhaps all, of the affected property owners still had not received the adequate notice they were entitled to by law and therefore, once again, were prevented from speaking out during the public hearing on the measure.

In addition, Michelson said the District Management Corporation, which has overseen the SID since it was formed 20 years ago, is not in compliance with New Jersey law.

For instance, he said, for an “unknown significant period of time,” the DMC failed to provide information to the public about its budget, including money received and spent. The affected property owners also contend the Rahway Arts District, which is expected to take over the newly enlarged SID, “has similarly been out of compliance with New Jersey law.”

Michelson went on to explain that when the city council approved the expansion of the SID they did not have sufficient financial and budget information to make such a decision because the DMC and Arts District Board failed to produce it. He said if they had this financial information it would have allowed for an informed decision regarding enlargement of the SID and designating another entity to administer it.

The lawsuit further claimed the creation of a scattered SID is “spot zoning,” or where individual properties are zoned “as someone wants them to be, but without relation to what the zoning is around them.”

“Spot zoning is not valid in New Jersey land practice, essentially because the designation of particular properties into particular zones would lack a sound foundation in Master Plans and good zoning principles,” Michelson noted in the legal brief.

He also pointed out in another of the seven counts in the lawsuit that many of the properties included in the SID do not have commercial use, which was intended by the state when they enacted the laws governing SID’s.

Michelson said when the city decided to add the 382 properties to the SID, they omitted some properties that were mixed-use buildings containing residential as well as business uses, which would fit within the intention of the expanded SID ordinance they approved.

In a telephone interview with LocalSource last Friday, Michelson said that he is seeking to invalidate Ordinance 42-14, but the injunction would protect the 382 property owners from paying the tax, or the court could order the tax money put into a special account until a ruling is handed down.