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Probate & Property

Mar/Apr 2023

Land Use Update: Legislative Exactions

Daniel R Mandelker


  • The US Supreme Court has adopted takings tests for uncompensated exactions that are based on its unconstitutional conditions doctrine.
  • Court's takings tests for exactions are more demanding than its takings tests for zoning and shift the burden of proof to the government.
  • Courts that decide whether legislative exactions are a taking make fundamental decisions.
Land Use Update: Legislative Exactions
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Your client is planning to build a new subdivision of 300 homes. The county planning commission told her that she must dedicate ten percent of her land to the county without compensation, as a condition for subdivision approval, to widen the adjacent road because her subdivision will create an increase in road traffic.

The planning commission also told her that a county ordinance requires that ten percent of the land in new subdivisions must be conveyed to the county without compensation for public parks as a condition for subdivision approval. In addition, another county ordinance requires an impact fee of five thousand dollars for each home in a new subdivision. The county will use the fee to expand its water plant to provide for the additional water demand that the subdivision creates. Your client tells you that these requirements will force her to raise the cost of the homes, which will make marketing more difficult. She asks for your advice.

The demands the county made on your client’s subdivision are exactions. An exaction is a government requirement that a developer must pay or provide for a public facility or public amenity as a condition to receiving approval for her development. The first exaction is an adjudicative exaction. The second exaction is a legislative exaction. The third exaction is a fee. All of them are uncompensated. The issue is whether they are an unconstitutional taking of property because they shift the cost of public facilities and amenities from the public to the private sector without compensation.

The Unconstitutional Conditions Takings Tests

The US Supreme Court has adopted takings tests for uncompensated exactions that are based on its unconstitutional conditions doctrine. This doctrine prohibits the government from requiring that a person give up a constitutional right as a condition to receiving a government benefit; for example, giving up the right to compensation in exchange for land use approval.

There are two takings tests for exactions. One is an “essential nexus” test, which requires some logical connection between a legitimate governmental objective and the exaction the government demands. This test is not difficult to meet. For example, there is a logical connection between a need for public parks and the conveyance of land for a public park. A more difficult “rough proportionality” test requires “some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.” Dolan v. City of Tigard, 512 U.S. 374, 391 (1994). For example, a conveyance for a road widening must not exceed what is needed to mitigate increased traffic demand stemming from the developer’s project.

The Court’s takings tests for exactions are more demanding than its takings tests for zoning and shift the burden of proof to the government. They apply to adjudicative exactions, such as the road widening exaction, but the Court has not decided whether they apply to legislative exactions, such as an impact fee. This update discusses this problem.

The Adjudicative versus Legislative Distinction

Exactions are either adjudicative or legislative. An adjudicative exaction is adjudicatively determined for each development and is related to a problem caused by that development. A legislative exaction is enacted by an ordinance and is applied uniformly to all development without adjudication.

Dolan recognized this distinction. It distinguished “essentially legislative determinations classifying entire areas of the city,” such as zoning, where the “conditions imposed were ... simply a limitation on the use petitioner might make of her own parcel,” from an adjudicative decision to condition a property owner’s application for a building permit on an individual parcel. The Court did not provide advice on how this distinction should be applied. Id. at 385.

Without the benefit of advice, courts have adopted different views on legislative exactions. One view holds that legislative exactions present some danger of improper leveraging, but are “subject to the ordinary restraints of the democratic political process.” San Remo Hotel L.P. v. City and County of San Francisco, 41 P.3d 87, 105 (Cal. 2002). A local government that adopts extortionate legislative exactions unjustified by mitigation needs will face widespread and well-financed opposition at the next election. Adjudicative exactions require special judicial scrutiny because they affect fewer citizens, evade systematic assessment, and are more likely to escape political controls. Id.

The contrary view holds that an ad hoc exaction is more likely to be a taking but that it is “entirely possible that the government could ‘gang up’ [through legislation] on particular groups to force exactions that a majority of constituents would not only tolerate but applaud, so long as burdens they would otherwise bear were shifted to others.” Town of Flower Mound v. Stafford Estates Ltd. Partnership, 135 S.W.3d 620, 641 (Tex. 2004).

These two views make different assumptions about the adjudicative process, the political process, and how each process functions. Two recent cases that considered legislative exactions reached different conclusions about which assumption is correct.

Knight v. Metropolitan Government of Nashville & Davidson County

In Knight v. Metropolitan Government of Nashville & Davidson County, 572 F. Supp. 3d 428 (M.D. Tenn. 2021) (appeal filed), a sidewalk ordinance provided that a property owner could receive a building permit to construct a new residence only if he agreed to construct a city sidewalk on his property, unless the Metropolitan Government waived this requirement or substituted an in-lieu fee. Knight sued, claiming that the ordinance had to comply with the US Supreme Court’s exaction takings tests.

Quoting Dolan’s distinction between “essentially legislative” determinations and adjudicative conditions, the court held that the sidewalk ordinance was essentially legislative, not individualized, adjudicatory decision-making. Although it shared some features of an adjudicative exaction because it involved an application for a building permit, the granting of a public right-of-way or easement, and the building of a sidewalk, it applied broadly to all new or substantial redevelopment in entire areas of Metropolitan Nashville. The in-lieu payment was set by a formula in the ordinance, it was not linked to a specific development proposal, and its requirements were not unique.

Neither did the US Supreme Court’s takings tests apply. The Court extended its takings tests to include monetary exactions, like the exaction in this case, in Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013), because it found two “realities” underlying the “permitting process.” Id. at 604-05. One reality was that land-use permit applicants are especially vulnerable to the coercion prohibited by the unconstitutional conditions doctrine because they are especially vulnerable to extortionate money demands. The Knight court concluded that the risk of an extortionate demand from the sidewalk ordinance did not exist, however, because it did not pose a significant risk of abuse of power or overreaching by land-use officials. The ordinance was generally applicable, the in-lieu fee was calculated under a defined procedure, and the fee was capped at three percent of a permit’s total construction value.

The “second reality in the permitting process” described in Koontz was that “many proposed land uses threaten to impose costs on the public that dedications of property can offset.” Id. at 605. The Knight plaintiffs agreed and claimed, “that the cost of sidewalks is being imposed upon them, as developers of property, when it should be borne by the public at large.” 572 F. Supp. 3d at 442.

The court rejected this claim. It held that the sidewalk ordinance exaction and the alternative in-lieu fee were more like a tax or user fee than the “individualized, property-specific” exactions that the US Supreme Court had considered. It quoted an appellate court’s concerns that applying the exaction takings tests to legislative exactions would require higher scrutiny for any development regulation and judicial interference with the exercise of local government police powers.

Anderson Creek Partners, L.P. v. County of Harnett

In Anderson Creek Partners, L.P. v. County of Harnett, 876 S.E.2d 476 (N.C. 2022), a county ordinance, as a condition for county concurrence in obtaining water and sewer permits from the North Carolina Department of Environmental Quality, charged each new residential connection with a one-time, non-negotiable “capacity use” fee of $1,000 for water service and $1,200 for sewer service. Koontz made monetary fees subject to its exaction takings tests because local governments could easily evade them by “phrasing its demands for property as conditions precedent to permit approval.” 570 U.S. at 606. Koontz did not give advice on what types of monetary fees had to comply with the US Supreme Court’s takings test. The North Carolina Supreme Court held that the county’s capacity use fee had to comply.

The court first decided that the capacity use fee was an exaction. It approved Black’s Dictionary definition of an exaction as a “requirement imposed by a local government that a developer dedicate real property for a public facility or pay a fee to mitigate the impacts of the project, as a condition of receiving a discretionary land-use approval.” The capacity use fee met that definition because it charged a cost to expand water and sewer services required by new development. It was not a user fee, which is a fee charged for the contemporaneous provision of water and sewer service to a user of these services.

The court then held that the “essential nexus” and “rough proportionality” tests applied because Koontz held that they applied to a broad range of governmental demands for money payments as a condition for a land use permit. It was enough, the North Carolina court held, if a local government demands property as a condition for a land-use permit applicant by requiring a dedication of land or the payment of money. Whether the fee was administrative or legislative was not relevant because the court was not concerned about the identity of the governmental actor that made the demand.

Neither was the court persuaded that the validity of the fee should be decided by the legislative, not the judicial, branch. The capacity use fee was non-discretionary and generally applicable, but its legislative basis did not eliminate or mitigate its “coercive pressure.” 876 S.E.2d at 497. The fee required judicial review because it was inherently coercive in the constitutional sense as a condition of obtaining county support for the state water and sewer permits.

On remand, the supreme court instructed the trial court to consider whether the fee was roughly proportional to the costs that new development would generate for the county’s water and sewer infrastructure. The plaintiff conceded the nexus issue.

Krupp v. Breckenridge Sanitation District, 19 P.3d 687 (Colo. 2001), is a contrary case. The court declined to apply Dolan to a plant investment fee assessed on all building projects by a special district providing wastewater services.

Courts that decide whether legislative exactions are a taking make fundamental decisions about the legislative and judicial function and the financial resources that are available for governmental needs. Questions unsettled by the US Supreme Court complicate these decisions. Courts that consider these questions must make difficult choices with important consequences for the financial responsibilities of local governments and land developers.