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Urban Lawyer

Recent Developments in Exactions And Impact Fees: Do You Know the Way to San Jose?

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 a past Chair of the American Bar Association’s Section of State and Local Government Law. He focuses his practice on land use and real estate, state and local government, and corporate entity  formation and governance.

Exactions are conditions imposed on developers in exchange for permission to develop land, in order to aid local government in providing public infrastructure. Exactions come in many forms, including conveyances of an interest in land and development impact fees. Exactions are typically imposed to provide land or funding for facilities such as water and sewer lines, road construction, new schools, and parks or open spaces.

The power to impose exactions is part of local government’s police power. 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 Commission1 and Dolan v. City of Tigard.2

[A]  unit of government may not condition the approval of a land use permit on the owner’s relinquishment of a portion of his property unless there is a “nexus“ and “rough proportionality“ between the government’s demand and the effects of the proposed land use.3

An impact fee, on the other hand, is imposed by a local government on a new or proposed development project to pay for a portion (including all) of the costs of providing public services to the new development. Impact fees are considered to be a charge on new development to help fund and pay for the construction or needed expansion of offsite capital improvements. These fees are usually implemented to help reduce the economic burden on local jurisdictions that are trying to deal with population growth within the area.

This article annually reviews developments in the areas of exactions and impact fee jurisprudence in the United States. In some years, we have a case such a Koontz or Horne4 to review. This was a quieter year, but one in which several courts issued decisions that refine or clarify how the law is generally seen in these areas, particularly after Koontz. Also, the year was marked by a significant state court exaction appeal that the United States Supreme Court chose not to review.

I.  Impact Fees

This review will start with an impact fee case from New England.

A. Rhode Island Builders Ass’n v. Town of Coventry5

The state and local governments of Rhode Island, like those of all other states, struggle to balance growth with the additional infrastructure needs that growth creates.

The Rhode Island General Assembly passed the Rhode Island Development Impact Fee Act granting municipalities the authority to establish impact fees. The Act was designed to ensure that municipal public facilities would be able to accommodate new growth and development and required those benefitting from the development to pay a proportionate share of the cost for new or upgraded public facilities needed to serve the expansion. However, impact fees could not exceed the proportionate share of the costs incurred, or to be incurred, by the governmental entity in accommodating the new expansion. The assessment of an impact fee is based upon the actual costs incurred to expand or improve public facilities, or upon reasonable estimates of the cost to be incurred. The Act further requires any calculation be in accordance with generally accepted accounting principles (GAAP). Before the assessment of any impact fee, a city or town is required to conduct a “needs assessment” to determine which public facility or facilities will receive the impact fees collected.6

In 2000, the Town of Coventry passed an ordinance assessing an impact fee of $7596 per each new residential unit based on a Fair Share Development Fee Report.7 The ordinance was amended in 2010.8 Coventry’s Director of Planning and Development had begun an investigation of Coventry’s population trend and the capital needs of its various departments, which he determined had established the need for the amendment.9

As part of his investigation, [Director] Sprague conducted a review of Coventry’s various department budgets. In order to project population growth and to anticipate the future population of Coventry, Sprague relied upon the 2005 U.S. Census report, the most recently published report at that time. After compiling and reviewing the gathered information, a second Fair Share Development Fee Report was presented to Coventry which proposed an Impact Fee to mitigate the adverse effect that projected population growth would have on its public departments and how to apportion the fee between various departments.10

Based on that report, Coventry amended its impact fee ordinance “assess[ing] the same amount of Impact Fees” but “alter[ing] the apportionment of the Impact Fee” to make it “more consistent with Coventry’s Comprehensive Community Plan.”11

In 2011, the plaintiffs filed suit, challenging the amount of the impact fee assessed under the Amended Impact Fee Ordinance12 and seeking (1) a declaration that Coventry’s ordinance was in violation of the enabling act, and (2) a return of impact fees paid.

On May 5, 2011, [Plaintiff ’s company] received Master Plan approval for a major subdivision of seventy-five lots. [Plaintiff ’s company] alleges that each residential unit was subjected to the imposition of Impact Fees under Coventry’s Amended Impact Fee Ordinance . . . pursuant to a [prior] [c]onsent [j]udgment.13

After deciding that the plaintiffs had standing and that the prior consent judgment did not preclude an assessment of impact fees, such   as these, in the future, the court turned to the issue of whether the plaintiffs, by paying the impact fees before filing suit, were barred by the voluntary payment doctrine.14

The town argued that, because plaintiffs had paid the impact fee voluntarily, they could not then file suit challenging the fee. The plaintiffs countered that the payment was an “involuntary payment made out of duress and compulsion” in that no alternative existed other than timely payment of the fee, which would rendered the voluntary payment doctrine inapplicable.15 The court reasoned that:

[T]he voluntary payment doctrine applies to both the payment of taxes and other similar payments, such as municipal fees. However, in order for a payor to recover paid fees, the payment must not have been made voluntarily. By their nature, the assessment of taxes or fees are involuntary. When reviewing whether a payment of an impact fee is voluntary, the totality of the circumstances must be taken into account in order to determine whether a payor was paying under duress. When a payor acts to protect one’s own property interest, or to “avoid threatened interference with present liberty of person,” formal protest is not required in order to recover those payments since the payments will be deemed to have been made under duress.16

The town contended that plaintiffs must have sought a declaratory judgment or injunctive relief before paying an impact fee, or even paid under protest, but the plaintiffs alleged duress “in that they [were] unable to carry on their business or livelihood unless the impact fee was first paid.”17

The court concluded that plaintiffs raised a genuine issue of material fact as to why the voluntary payment doctrine did not apply in this case.18

Without paying the Impact Fee, [one plaintiff] would have been unable to occupy his newly constructed home. Since Coventry’s Amended Impact Fee Ordinance d[id] not provide a way to challenge the assessment of an Impact Fee, there is a genuine issue as to whether [that plaintiff], given the totality of the circumstances, paid under duress.19

The court then turned to the validity of the ordinance under Rhode Island’s enabling act. The plaintiffs argued that the town council failed to modify its fee report prior to the ordinance’s amendment, and that the report itself did not satisfy the enabling act because it did not “individually list the future needs of Coventry’s public facilities that re- late to new growth and development.”20 It was, according to the plain- tiffs, merely a wish list of upgrades and improvements the town wanted to make to public facilities.21

Under the enabling act:

[A]n Impact Fee “must not exceed a proportionate share of the costs incurred or to be incurred by the governmental entity in accommodating the development.” Before assessing an impact fee, the municipality must conduct and adopt a needs assessment for the facilities the impact fees are to be levied, with such needs assessment distinguishing existing needs and deficiencies from future needs. Impact Fees are to be based on actual costs of public facility expansion or reasonable estimates of the costs to be incurred.22

The court concluded that the enabling act required “only that the assessment of an impact fee has to be based upon the reasonable estimates of the costs incurred by the town as a result of the new developments.”23

[The legislature] intended only for municipalities to reasonably estimate the impact that new developments would have on its current facilities. Mathematical certainty or exactness is not a requirement. Even though the Town Council did not precisely adopt the figure of the 2010 Fee Report, it could not be stated, without additional evidence, that the figure adopted was unreasonable.24

That issue, then, along with the other issues dependent upon disputed material facts, was sent back to the trial court.25

II.  Exactions

A.   Sammartino v. Planning & Zoning Commission of the Town of Andover26

In this case, decided by the Superior Court of Connecticut, the plaintiff filed an application with the planning and zoning commission to subdivide a parcel of land into four lots. The application was unanimously granted by the commission subject to certain conditions, including a condition for the provision of fire protection by a cistern or a sprinkler system pursuant to Andover’s subdivision regulations. The plaintiff appealed, alleging both that the fire suppression requirement exceeded the commission’s statutory authority, and that mandating a cistern constituted an exaction.27

The court found that state law authorizes a town to pass regulations concerning water and fire suppression under the local government’s regulatory authority for public health and safety. Consequently, “the commission’s requirement for a water source for fire protection d[id] not conflict with the fire marshal’s statutory authority.”28

As for the exaction claim, the court noted that a land use regulation does not affect a taking if it “substantially advances legitimate state interests” and “does not deny an owner economically viable use of his land.”29 The test for whether a subdivision regulation effects a taking has been articulated as “whether the exaction must be ‘reasonably related’ or ‘uniquely and solely attributable’ to the proposed subdivision.”30

The court found that the imposition of subdivision controls in this instance was a proper exercise of police powers, not a taking. As a result, the requirement providing for fire safety, determined not to be a taking outside of the permitting process, could not be an exaction.31 The court discussed two tests for determining whether a requirement is an exaction:

The public benefit which flows from subdivision control does not require that such control be exercised through the power of eminent domain rather than the police power . . . Where reasonable and impartial, a commission’s power to regulate the use of land does not constitute a taking without due process of law or just compensation.32

The test which has been generally applied in determining whether a requirement that a developer set aside land for parks and playgrounds as a prerequisite to the approval of a subdivision plan is whether the burden cast upon the subdivider is specifically and uniquely attributable to his own activity. Where the requirement is uniquely attributable to the subdivider’s activity, it has been held to be a permissible exercise of the police power.33

Applying both tests to the case, the court found that “the regulation was a reasonable exercise of the commission’s police power to protect public safety” and that the cistern requirement was “solely attributable” to establishing a subdivision — a project the plaintiff voluntarily choose to undertake.34

B.   Common Sense Alliance v. Growth Management Hearings Board35

In this case a Washington state appellate court reviewed and affirmed a lower court’s rejection of a challenge to San Juan County’s critical area ordinances.

Washington’s Growth Management Act36 directs local governments to designate “critical areas” and adopt development regulations to protect them.37 Beginning in 2006, San Juan County updated these ordinances; the particular ordinances challenged were enacted in 2012.38 Several petitions for review of the ordinances were filed with the Growth Management Hearings Board, challenging the ordinances as not sufficiently protective of the environment,39 or, alternatively, too protective of the environment at the expense of private property owners.40

A property owners’ group, the Common Sense Alliance, supported by the Pacific Legal Foundation as amicus, also argued that the buffers required by the habitat ordinance constituted unconstitutional conditions in violation of Nollan and Dolan.41 Specifically, they argued, “the ordinance impermissibly imposes inflexible blanket rules, like requiring a water quality buffer or protection of all trees within 110 feet  of aquatic critical areas.”42

The court noted that:

Both Nollan and Dolan involved permits. The landowner in Nollan was given a permit to build a house on the beach in California on the condition that he dedicate a public easement across his property to permit physical access by the public to the public beach near Nollan’s property . . . The landowner in Dolan was given a permit to double the size of her hardware store and add a paved parking lot.43

The court then reviewed the Nollan/ Dolan test:

[A]  special application of the unconstitutional conditions doctrine that protects the Fifth Amendment right to just compensation for property the government takes when owners apply for land-use permits. Under the unconstitutional conditions doctrine, the government may not deny a benefit to a person because he exercises a constitutional right . . . The Nollan/ Dolan test reflects two realities of the land use permitting process. First, land use permit applicants are especially vulnerable to coercion because the government often has broad authority to deny a permit that is worth far more than the property it would take. And second, many proposed land uses threaten to impose costs on the public that dedications of property can offset.44

The court agreed that a land use ordinance could be facially challenged as a regulatory taking, but noted, significantly, that the Nollan/ Dolan test had not been used to invalidate a land use ordinance of general application, as the Alliance sought to do in this case.45 Rather, the court found that courts have “confined Nollan/ Dolan analysis to land use decisions that condition approval of a specific project on a dedication of property to public use.”46

An ordinance requiring a buffer zone is a legislative act, not a land use decision: Legislative determinations do not present the same risk of coercion as adjudicative decisions. Even assuming the Nollan/ Dolan test can be applied to determine whether a land use ordinance constitutes a taking, the Alliance had not shown that a taking occurred by the enactment of the San Juan County critical areas ordinances. Because the Nollan/ Dolan test is a special application of the unconstitutional conditions doctrine, every United States Supreme Court decision applying it has asked first whether the government demands an exaction that would be an unconstitutional taking outside the permitting process. If the exaction does not constitute a taking, the condition is not unconstitutional and the inquiry ends.47

Here, the court determined that the buffer requirement was not “an exaction or a dedication” of land.48

No interest in land will be transferred or conveyed by the operation of the San Juan County ordinances. The property owner can use the buffer for all authorized uses and can exclude others. In this respect, the required buffers are like setbacks in zoning regulations.49

Thus, the ordinances were facially valid: “site-specific flexibility was built into the ordinances through exemptions, buffer averaging, and the reasonable use exemption.”50 By using the “best available science,” the court determined that the need for such buffers “to protect [the] habitat and demonstrate a proportional relationship between the impacts of development and the measures adopted to mitigate it” had been established.51 The ordinances were valid and did not violate the unconstitutional conditions doctrine.52

C.   Bridge Aina Le’a, LLC v. State Land Use Commission53

In this decision, the United States District Court for the District of Hawaii reviewed a decision of the State of Hawaii Land Use Commission (the “LUC”) to reclassify a parcel’s use from urban use to agricultural use. Bridge Aina Le’a, LLC owned the parcel, and argued that the reclassification violated the unconstitutional conditions doctrine, as well as other constitutional rights.

The subject parcel of land consists of 1,060 acres in South Kohala, on the island of Hawaii. On November 25, 1987, the parcel was purchased by a private company and the purchaser petitioned to reclassify the land from ‘agricultural use’ to ‘urban use.’ The LUC approved the petition on condition that 60 percent of the homes built would be ‘affordable’ units.54

Many years later, when the plaintiff became the owner, the land was classified for urban use and the affordable unit provision still applied. This condition required 60 percent of the homes to be affordable, but also mandated a minimum of 1,000 of these homes.55 In 2009, the LUC ordered Bridge to complete 16 affordable units by March 31, 2010, but when the units were not finished until three months after the deadline was missed, “the LUC voted to reclassify the land back to agricultural use.”56

There are several claims and defenses addressed by the court in this opinion, but when the court turned to the takings and unconstitutional conditions claim, it concluded that the unconstitutional conditions framework was inapplicable to two of the takings causes of action.57

In Counts I and II, the property owner had raised takings claims based on the argument that the affordable housing requirement was an exaction, and therefore unconstitutional and invalid.58 The court pointed out that, unlike another cause of action challenging the affordable housing condition itself as unconstitutional, these causes of action “do not challenge the affordable housing condition itself,” but instead “challenge the LUC’s response to [Bridge’s] alleged failure to timely satisfy the condition.”59 The court granted summary judgment for the LUC on those causes of action, but denied them as to other surviving constitutional causes of action.60

D.  California Building Industry Ass'n v. City of San Jose.61

In this decision by the California Supreme Court, a building industry association challenged the City of San Jose’s inclusionary housing ordinance, which required “all new residential development projects of  20 or more units to sell at least 15 percent of the for-sale units at a price that is affordable to low or moderate income households.”62 The trial court had determined that the conditions violated the takings clauses of the U.S. and California Constitutions, and prohibited its enforcement.63 The Court of Appeal reversed,64 and the California Supreme Court in this decision affirmed the Court of Appeal.65

The question posed by the court was:

Does the San Jose inclusionary housing ordinance, in requiring new residential developments to sell some of the proposed new units at an affordable housing price, impose an “exaction” on developers’ property under the takings clauses of the federal and California Constitutions, so as to bring into play the unconstitutional conditions doctrine?66

The California Supreme Court began its analysis by stating the rule in California that:

[W]hen a municipality enacts a broad inclusionary housing ordinance to increase the amount of affordable housing in the community and to disperse new affordable housing in economically diverse projects throughout the community, the validity of the ordinance does not depend upon a showing that the restrictions are reasonably related to the impact of a particular development to which the ordinance applies. Rather, the restrictions must be reasonably related to the broad general welfare purposes for which the ordinance was enacted.67

The California Constitution grants “broad authority, under its general police power to regulate the development and use of real property” so long as it “promote[s] the public welfare.”68

The variety and range of permissible land use regulations are extensive and familiar, including, restrictions on . . . use, limitations on the density and size of permissible residential development, required set-backs, aesthetic restrictions and requirements, and price controls. As a general matter, so long as a land use restriction or regulation bears a reasonable relationship to the public welfare, the restriction or regulation is constitutionally permissible.69

Here, the plaintiff contended that the challenged ordinance violated “the unconstitutional conditions doctrine, as applied to development exactions.”70 In addressing plaintiff ’s challenge, the court stated:

[T]here can be no valid unconstitutional-conditions takings claim without a government exaction of property, and the ordinance in the present case does not effect an exaction. Rather, the ordinance is an example of a municipality’s permissible regulation of the use of land under its broad police power.71

The court noted that even in Koontz,72 which applied this doctrine to the payment of fees, the United States Supreme Court explicitly ac- knowledges that “[a] predicate for any unconstitutional conditions claim is that the government could not have constitutionally ordered the person asserting the claim to do what it attempted to pressure that person into doing.”73

Or, in other words, the condition is one that would have constituted a taking of property without just compensation if it were imposed by the government on a property owner outside of the permit process . . . Nothing in Koontz suggests that the unconstitutional conditions doctrine under Nollan and Dolan would apply where the government simply restricts the use of property without demanding the conveyance of some identifiable protected property interest (a dedication of property or the payment of money) as a condition of approval.74

As for the City of San Jose’s inclusionary housing ordinance, the court found no unconstitutional conditions doctrine violation “because there is no exaction — the ordinance does not require a developer to give up a property interest for which the government would have been required to pay just compensation under the takings clause outside of the permit process.”75

As summarized above, the principal requirement that the challenged ordinance imposes upon a developer is that the developer sell 15 percent of its on-site for-sale units at an affordable housing price. This condition does not require the developer to dedicate any portion of its property to the public or to pay any money to the public. Instead, like many other land use regulations, this condition simply places a restriction on the way the developer may use its property by limiting the price for which the developer may offer some of its units for sale.76

The United States Supreme Court has declined to review this decision,77 despite anticipation from practitioners and academics who wanted to see whether the court would extend Nollan and Dolan to legislative enactments such as this one, or find that inclusionary zoning requirements could amount to an unconstitutional condition. The Court denied certiorari, with a concurring opinion by Justice Thomas, who wrote:

I continue to doubt that the existence of a taking should turn on the type of governmental entity responsible for the taking. Until we decide this issue, property owners and local governments are left uncertain about what legal standard governs legislative ordinances and whether cities can legislatively impose exactions that would not pass muster if done administratively. These factors present compelling reasons for resolving this conflict at the earliest practicable opportunity.78

Given the factual challenges of this case, though, the Court, or at least Justice Thomas, decided this was not the time.

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  1. 483 U.S. 825 (1987).
  2. 512 U.S. 374 (1994).
  3. Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2591 (2013).
  4. Horne v. Dep’t of Agric., 135 S. Ct. 2419 (2015).
  5. No. 2011-1134, 2015 R.I. Super. LEXIS 126 (R.I. Super. Ct. Oct. 2, 2015).
  6. Id. at *2-3 (discussing 45 R.I. GEN. LAWS §45-22.4(a) (2016)).
  7. Coventry, 2015 R.I. Super. LEXIS 126, at *3 (discussing COVENTRY, R.I., CODE, No. 5-00-0220 (2000) (current version at COVENTRY, R.I. CODE § 106-6 (2016)).
  8. See COVENTRY, R.I., CODE § 106-6 (2016).
  9. Coventry, 2015 R.I. Super. LEXIS 126, at *3.
  10. Id. at *4-5.
  11. Id. at *5.
  12. Id.
  13. Id. at *6-7.
  14. Id. at *10-15.
  15. Id. at 16. (“The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts.”).
  16. Id. at 16-17 (internal citations omitted).
  17. Id. at *18.
  18. Id.
  19. Id. at *18-19.
  20. Id. at *21.
  21. Id.
  22. Id. (quoting 45 R.I. GEN. LAWS §45-22.4(a) (2016)).
  23. Coventry, 2015 R.I. Super. LEXIS 126, at *22 (R.I. Super. Ct. 2015).
  24. Id. at *23-24.
  25. Id. at *24.
  26. No. 146055760S, 2016 Conn. Super. LEXIS 416 (Conn. Super. Ct. Feb. 8, 2016).
  27. Id. at *1.
  28. Id. at *20.
  29. Id. at *21 (quoting Dolan v. City of Tigard, 512 U.S. 374, 385 (1994)).
  30. Sammartino, 2016 Conn. Super. LEXIS 416, at *21 (quoting Dolan, 512 U.S. at 389).
  31. Sammartino, 2016 Conn. Super. LEXIS 416, at *22.
  32. Id. at *22 (quoting Raybestos-Manhattan, Inc. v. Planning & Zoning Comm’n, 442 A.2d 65, 68 (Conn. 1982)).
  33. Sammartino, 2016 Conn. Super. LEXIS 416, at *22 (quoting Aunt Hack Ridge Estates, Inc. v. Planning Comm’n of Danbury, 273 A.2d 880, 885 (Conn. 1970)).
  34. Sammartino, 2016 Conn. Super. LEXIS 416 at *23.
  35. No. 72235-2-I, 2015 Wash. App. LEXIS 1908 (Wash. Ct. App. Aug. 10, 2015), cert. denied, 2016 Wash. LEXIS 234 (Wash. Feb. 10, 2016).
  36. WASH. REV. CODE § 37.60A (2016).
  37. Id.
  38. SAN JUAN CTY., WASH. CODE §§ 26-2012, 27-2012, 28-2012, 29-2012 (2016).
  39. Common Sense All., 2015 Wash. App. LEXIS 1908, at *2 (stating that among the groups filing petitions with these allegations, Friends of the San Juans was included).
  40. Id. (stating that among the groups filing petitions with these allegations, Common Sense Alliance and P.J. Taggares Company were included).
  41. Id. at *15.
  42. Id.
  43. Id. at *15-16 (discussing Nollan v. Cal. Coastal Comm’n, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994)).
  44. Common Sense All., 2015 Wash. App. LEXIS 1908, at *17-18.
  45. Id. at *18.
  46. Id.
  47. Id. at *19.
  48. Id. at *19-20.
  49. Id. at *20.
  50. Id. at *21.
  51. Id.
  52. Id.
  53. No. 11-00414, 2016 U.S. Dist. LEXIS 24224 (D. Haw. Feb. 29, 2016).
  54. Id. at *1-2.
  55. Id. at *3.
  56. Id.
  57. Id. at *15.
  58. Id. at *7-9.
  59. Id. at *17-18.
  60. Id. at *28.
  61. 351 P.3d 974 (Cal. 2015).
  62. Id. at 978; see also SAN JOSE, CAL. CODE §§ 5.08.010–5.08.730 (2016).
  63. Cal. Bldg., 351 P.3d at 978.
  64. Id.
  65. Id. at 979.
  66. Id. at 986.
  67. Id. at 1000.
  68. Id.
  69. Id. at 986-87.
  70. Id. at 988.
  71. Id. at 986-87.
  72. Koontz v. St. Johns River Water Mgmt, Dist., 133 S. Ct. 2586 (2014).
  73. Id. at 2598.
  74. Cal. Bldg., 351 P.3d at 990.
  75. Id. at 991.
  76. Id.
  77. Cal. Bldg. Indus. Ass’n v. City of San Jose, 136 S. Ct. 928 (2016) (denying cert.).
  78. Id. at 928-29.