October 10, 2014 Urban Lawyer

After Koontz: Recent Developments in Exactions & Impact Fees

by W. Andrew Gowder, Jr.

W. Andrew Gowder, Jr. is a shareholder, Pratt-Thomas Walker, P.A., Charleston, South Carolina. J.D. cum laude, Wake Forest University School of Law; B.A., summa cum laude, Phi Beta Kappa, Wofford College. Mr. Gowder is the immediate past Chair of the American Bar Association’s Section of State and Local Government Law. He focuses his practice on land use, state and local government, business litigation, business entity formation and governance.

Exactions are conditions imposed on developers in exchange for permission to develop land, to aid local government in providing public infrastructure.1 Exactions come in many forms, including conveyances of an interest in land and development impact fees.2 Exactions are typically imposed to provide land or funding for facilities such as water and sewer lines, road construction, new schools, parks, and open space.3 The power to impose exactions is part of local government’s police power.4 If that power is exercised properly, an exaction that serves the same legitimate police power as a refusal to issue a permit will not constitute a taking. On the other hand, an exaction that, outside the context of the permitting process, would constitute a taking and require just compensation may run afoul of the doctrine of unconstitutional conditions as articulated in the decisions of Nollan v. California Coastal Commission5 and Dolan v. City of Tigard.6

The Supreme Court’s decision last term of Koontz v. St. Johns River Water Management District7 brought renewed attention to this doctrine as developed in the Nollan and Dolan decisions. This annual update will review the aftermath of the Koontz case on remand following the Supreme Court decision, and the Florida court’s opinion illustrating the continuing disagreement about what that case held and what it did not. This article will then explore the remand of another Supreme Court decision from last term, Horne v. U.S. Department of Agriculture,8 and how the Koontz opinion influenced the federal appeals court’s decision of that case. Finally, a California decision, Powell v. County of Humboldt,9 will illustrate how at least one state appellate court views the current state of Nollan and Dolan jurisprudence after Koontz.

I. Nollan and Dolan: A Refresher

In Nollan, the California Coastal Commission approved the construction of a three bedroom ocean-front house, replacing the bungalow that had been located on the site, subject to Nollan’s dedication of a public access easement across a portion of their property to the beach.10 The Commission contended the easement was required to assist the public in viewing the beach and in overcoming a perceived “psychological barrier” to using the beach.11 The owners challenged the easement, arguing the condition violated the Takings Clause of the Fifth Amendment,12 which provides that private property cannot be taken for public use without just compensation.13 The Supreme Court struck down the condition as unconstitutional. Although protection of the public’s ability to view the beach was a legitimate governmental interest, no nexus existed between the identified impact of the project (obstruction of the beach view) and the easement condition (physical access to the beach).14 There being no “essential nexus” between the adverse impacts of the development and the required easement, the decision to impose the condition was not proper and could amount to a taking.15

In 1994, the Dolan16 decision took on the issue left unanswered by Nollan: how close must the connection, or “nexus,” be for a regulation to “substantially advance” a “legitimate state interest?” Dolan applied to the city for a building permit to develop a site in the business district of Tigard, Oregon, along Fanno Creek, which flows through the southwestern corner of the lot and along its western boundary.17 Dolan planned to double the size of the store and pave a 39-space parking lot.18 The Planning Commission conditioned the grant of Dolan’s permit subject to certain conditions, including the requirement that Dolan “dedicate the portion of her property lying within the 100-hundred year flood plain for improvement of a storm drainage system along Fanno Creek and [to] dedicate an additional 15-foot strip of land adjacent to the floodplain as a pedestrian/ bicycle pathway.19

A divided court held that a city must demonstrate that development conditions placed on a discretionary permit must have a “rough proportionality” to the development’s impact, and if it does not, the condition may constitute a taking.20 In making an adjudicative decision, a city must demonstrate a “required reasonable relationship” between the conditions to be imposed on the development permit and the development’s impact.21 The court determined the exactions on Dolan’s permit were unconstitutional because the city failed to show the conditions were roughly proportional to the negative impacts caused by the development.22

Following Nollan and Dolan, courts have distinguished between a local government’s decision to require a dedication of land as a condition of approval (e.g., building or development permits, plat approvals) from legislative requirements applicable to all development permits of a certain kind or size, where no individual bargaining or determinations are involved. In addition, in Nollan and Dolan, the permitting authorities approved the permits, but conditioned the approval on an exchange for real property belonging to the applicant. If the landowners rejected the conditions, they would give up the permits and the right to develop their properties.23

In City of Monterey v. Del Monte Dunes at Monterey, Ltd., the court emphasized it has “not extended the rough-proportionality test of Dolan beyond the special context of exactions — land-use decisions conditioning approval of development on the dedication of property to public use.”24 In Lingle v. Chevron U.S.A. Inc., the Court noted “Nollan and Dolan both involved dedications of property so onerous that, outside the exactions context, they would be deemed per se physical takings.”25

Since Nollan and Dolan, state and federal courts have continued to refine the “essential nexus” and “rough proportionality” tests and apply them to various kinds of exactions, both in real property dedications and in fee payment required of owners as a condition of developing real property.

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