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

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