Businesses suing City of Rahway over very large expansion of SID

Photo by David VanDeventer A view of downtown Rahway on a snowy day from the most recent winter. A group of Rahway businesses is bringing legal action against the city over the expansion of the SID from 138 businesses, to 520.
Photo by David VanDeventer
A view of downtown Rahway on a snowy day from the most recent winter. A group of Rahway businesses is bringing legal action against the city over the expansion of the SID from 138 businesses, to 520.

RAHWAY, NJ – The city responded to a lawsuit brought by a group of 100 business owners who feel the expansion of the Special Improvement District was unlawful.

Brian Hak, the newly appointed Rahway city council attorney as of 2015 and a member of the legal firm Weiner Lesniak, disagreed with the majority of the seven charges levied. This means the two will go to trial if they do not come to an agreement over the allegations made by the property owners.

A SID is a model for management of a municipality’s commercial corridor. It is authorized by state law to be formed by ordinance in any municipality in New Jersey.

An improvement district provides a mechanism for the businesses and property owners in the community to organize as a single entity to raise funds and promote activities that “enhance and expand upon municipal services.”
According to information obtained from state statutes, there are no set rules on the inclusion of businesses in a SID, with municipalities given leeway in this area.

The lawsuit, filed in early February by the Friends of Rahway Business LLC, levied the charges against the city and council after they approved a measure in December expanding the SID from 138 to 520 businesses. The city originally formed a SID 20 years ago under the guidance of former Mayor James Kennedy.

At issue is whether the city had the legal right to expand the SID in the manner they did when many of the businesses are not in the downtown, and are, in fact, spread throughout the municipality.

Specifically, the lawsuit contends that by the city adding the approximately 382 properties that are not adjacent to one another, this created a “scattered site SID,” and one that the group maintains is “spot zoning.”

The group’s attorney, William Michelson, of Fanwood, noted in the lawsuit that the “creation of a non-contiguous SID,” particularly one where the properties involved are scattered over a large area, “is analogous to the more familiar practice known as spot zoning, wherein individual properties are zoned as someone wants them to be, but without relation to what the zoning is around them.”

The city denied this charge, noting the Municipal Land Use Law is not applicable in this case because the city did not expand the SID relative to this law. In other words, they did not use the land use law to expand the SID.

Michelson, though, said given the way the city set up the expanded SID, many of the property owners would not be privy to benefits offered to members in the immediate downtown area. He cited isolated properties, such as a doctor’s office, industrial sites and mixed uses with businesses on the ground floor and apartments on the upper levels as examples.

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

Rahway City Administrator Cherron Rountree said at the Dec. 8 meeting explaining the expansion of the SID that she expected the levy would drop from 35 to 30 cents for every $100 of assessed value after the expansion.

The city argued that the reasoning behind expanding the SID 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 was anticipating hiring a commercial broker to look at Rahway overall, which Rountree said would help fill vacancies in the downtown area and bring new businesses to Rahway.

The Friends of Rahway Business LLC also claimed that the city failed to provide adequate legal notice to the 382 property owners affected by the change, but the city denied this. According to Hak’s response to the lawsuit, the notice reflecting the council’s action to expand the SID was published Dec. 18, 2014, which satisfied the required legal notice.

Overall the city either denied the various accusations within the seven counts or responded saying they “neither admitted or denied” what the Friends of Rahway Business LCC said took place.