It’s Alive: the Highlands TDR Program Revived

One of the longest and loudest complaints about the Highlands Act has been the inability of the State to compensate property owners for the lost value and development potential of their property.  At its meeting last night, the Highland Council unveiled its latest efforts to address this issue, through the revival of its Transfer of Development Rights Program ("TDR Program").  The Highlands Act requires the Highland Council to implement a TDR Program as a method of compensating owners of property in the Highlands that has been rendered undevelopable as a result of the adoption and implementation of the Highlands Act. 

TDR programs have had mixed success in other development contexts.  The classic example is an intra-municipal TDR Program.  These TDRs have had some success by allowing a municipality to control development within its borders.  Certain neighborhoods within the municipality, called “Sending Areas,” are down-zoned to discourage future development or to prevent more dense development.  The lost development potential of the property within the Sending Area is assigned a dollar value.  Property owners are entitled to reimbursement for this lost value, and the TDR Program provides the mechanism that generates the funds for that reimbursement.  The TDR Program creates a bank that converts the dollar value of the Sending Area development potential into credits, to be purchased by developers and applied toward development elsewhere in the municipality.  The areas where the credits can be used, either to allow development or to allow development at a higher density, are referred to as “Receiving Areas.”  By offering credits to allow for heightened densities, development rights, and other incentives, municipalities are able to encourage development in targeted areas.

The Highlands Council has struggled to implement the TDR model in the Highlands context.  Unlike intra-municipal TDR programs, the Highlands Council not only failed to identify Receiving Areas within the same municipality as the Sending Areas, but also failed to establish any Receiving Areas within the entire Highlands Region.  It struggled to identify incentives to entice municipalities outside the Highlands Region to agree to be Receiving Areas, and failed to successfully market its credits, called Highlands Development Credits, to developers.

The Highlands Council announced that it has made progress in its implementation of the Highlands TDR program, as it has now identified several urban municipalities in Bergen and Passaic County that are willing to serve as receiving zones to foster development and infrastructure improvements.  The Highlands Council is still working to understand the economic impact of the revived TDR Program and to design incentives to attract developers to the program.

The Highland Council expects that developers utilizing the TDR Program will be required to pay an impact fee, projected to be approximately $15,000 per unit, in addition to the cost of purchasing the Highlands Development Credits.