2013 Annual Meeting. Planning and Takings in the Aftermath of Koontz

Transcription

1 2013 Annual Meeting Planning and Takings in the Aftermath of Koontz Moderator: Darius W. Dynkowski, Ackerman Ackerman & Dynkowski, Bloomfield Hills, MI Speakers: Paul J. Beard II, Pacific Legal Foundation, Sacramento, CA (argued for Petitioner) Paul Wolfson, WilmerHale, Washington, DC (argued for Respondent) Professor David Callies, University of Hawaii, William S. Richardson School of Law, Honolulu, HI Steven J. Eagle, George Mason University School of Law, Arlington, VA August 9, 2013 Grand Hyatt San Francisco, CA

2 SPEAKERS Paul James Beard, II Pacific Legal Foundation 930 G St Sacramento, CA Phone: pjb@pacificlegal.org Darius W. Dynkowski Ackerman Dynkowski & Acherman 100 W Long Lake Rd Ste 210 Bloomfield Hills, MI Phone: darius@nationaleminentdomain.com Steven J. Eagle George Mason Univ. School of Law 3301 Fairfax Dr. Ste 201 Arlington, VA Phone: seagle@gmu.edu Paul R. Wolfson WilmerHale 1875 Pennsylvania Ave NW Washington, DC Phone: Fax: paul.wolfson@wilmerhale.com

3 American Bar Association Section of State and Local Government Law 2013 Annual Meeting Planning and Takings in the Aftermath of Koontz v. St. Johns River Water Management District Paul J. Beard II Principal Attorney Pacific Legal Foundation August 8-11, 2013 Moscone Center West San Francisco, CA

4 Synopsis of the Case Coy Koontz, Sr., sought to develop about 3.7 acres of his 15-acre commercial lot in Orlando, Florida. The area surrounding his vacant lot was well-developed, and the project site had no viable wetlands or endangered/threatened species. Nevertheless, because the lot was in a zone that presumptively labeled it wetlands, he had to obtain permits from St. Johns River Water Management District (a state agency). At his permits hearing, the District demanded that he first agree to (1) place the remaining portion of his lot into a conservation easement and (2) finance wetlands-related improvements to ditches to District-owned land located miles away. The District justified its demands on the project s alleged impacts to wetlands and wildlife, but made no showing and presented no evidence of such impacts. Koontz reluctantly agreed to the conservation easement requirement. But he refused to pay for the off-site improvements. Because of his refusal to submit to the second demand, the District simply denied his permit applications. Koontz sued the District in state court, alleging (among other things) that the District s demands bore no connection or proportionality to the impact of his project, and therefore imposed an unconstitutional burden on Koontz s right to just compensation under the Takings Clause, pursuant to Nollan v. California Coastal Commission and Dolan v. City of Tigard. In Nollan, a state agency approved a permit to remodel a home, on the condition that the owner give up a public-access easement. The United States Supreme Court held that such an exaction was unconstitutional under the Takings Clause, because it lacked an essential nexus to the impact of the project: Because the owner s remodel project had no impact on existing public access, the agency s demand was nothing more than an out-and-out plan of extortion. Several years later, in Dolan, the Court refined the Nollan test, holding that an exaction also must be roughly proportional to the impact of the proposed use of the land. Like in Nollan, in Dolan, an agency approved a permit on the condition that the owner give up interests in her land. The trial court ruled in Koontz s favor, forcing the District to issue the permits without the offending exaction. The trial court also awarded Koontz damages under Florida law for the temporary taking of Koontz s property during the period when the District unlawfully withheld permits. The Florida court of appeals affirmed. But the Florida Supreme Court reversed, holding that Nollan/Dolan did not apply and therefore Koontz had no claim. First, the court held that Nollan/Dolan apply only to exactions of interests in real property not, as in this case, to monetary exactions. Second, the court ruled that Nollan/Dolan apply only where a permit has issued with conditions. Because permits in this case had been denied, nothing had ever been taken from Koontz, and therefore Koontz could not state a claim for a taking even under Nollan and Dolan. The court failed to recognize that in both Nollan and Dolan, the plaintiffs never obtained permits for their projects; instead, the plaintiffs received contingent approvals with conditions which, substantively, is no different than a permit denial for refusal to submit to conditions.

5 The Questions Presented 1. Whether the government violates the Takings Clause when it refuses to issue a land-use permit on the sole basis that the permit applicant did not accede to a permit condition that, if applied, would violate the essential nexus and rough proportionality tests set out in Nollan and Dolan. 2. Whether the nexus and proportionality tests set out in Nollan and Dolan apply to a land-use exaction that takes the form of a government demand that a permit applicant dedicate money, services, labor, or any other type of personal property to a public use. Holdings 1. The United States Supreme Court unanimously held that both conditions precedent and conditions subsequent to permit approval are subject to Nollan/Dolan scrutiny. 2. In the land-use permitting context, where the unconstitutional conditions doctrine is in play, money is property protected by the Takings Clause. Therefore, monetary exactions are subject to Nollan/Dolan scrutiny in the same way that exactions of real property interests are. Summary: Permitting agencies will have to demonstrate that monetary exactions, like exactions of real property interests, bear an essential nexus and rough proportionality to the impact of the applicant s proposed use of land.

6 American Bar Association Section of State and Local Government Law 2013 Annual Meeting Koontz v. St. Johns River Water Management District: Sic Semper Nexus and Proportionality David L. Callies, FAICP Benjamin Kudo Professor of Law William S. Richardson School of Law University of Hawaii at Manoa

7 Land Development Conditions After Koontz v. St. Johns River Water Management District: Sic Semper Nexus and Proportionality By David L. Callies, FAICP Benjamin Kudo Professor of Law William S. Richardson School of Law University of Hawaii at Manoa I. Introduction: A Summary of the Court s Holding On June 25, 2013, the United States Supreme Court rendered its long-anticipated decision in Koontz v. St. Johns River Water Management District, U.S. (2013). Writing for a five-justice majority, Associate Justice Alito held (1) that a government s demand for money or land from a land use permit applicant must satisfy the nexus and proportionality requirements of the Court s previous Nollan/Dolan requirements even when it denies the permit, and (2) the government s demand for property from a land use permit applicant must satisfy these Nollan/Dolan requirements even if the demand is for money like impact fees, in-lieu fees, and other money exactions rather than a dedication of an interest in real property, like an easement. In holding that monetary exactions must satisfy the nexus and proportionality requirements of Nollan and Dolan, the court explained the required direct link between the government s demand and a specific parcel of real property: the property interest is the landowner s parcel for which government development permission is sought, not the character of the exaction as an interest in real property, as many have urged and some lower courts have held. In this case, 1

8 ... the monetary obligation burdened the petitioner s ownership of a specific parcel of land.... The fulcrum this case turns on is the direct link between the government s demand and a specific parcel of real property. Because of that direct link, this case implicates the central concern of Nollan and Dolan: the risk that the government may use its substantial power and discretion in land-use permitting to pursue governmental ends that lack an essential nexus and rough proportionality to the effects of the proposed new use of the specific property at issue, thereby diminishing without justification the value of the property. Koontz, slip op. at II. The Background: What the Constitution Requires and the Lower Court Splits The Fifth Amendment to the United States Constitution ensures that private property shall not be taken for public use unless just compensation is paid. U.S. CONST. amend. V. The Takings Clause does not specify the precise types of governmental action that qualify as a taking, but the Supreme Court of the United States has identified three types of actions that qualify. These actions include physical invasions, over-regulation, and land use exactions. This paper will focus on the last type of governmental action. See Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S 419 (1982) (physical invasions); Penn Cent. Transp. Co. v. N.Y.C., 438 U.S. 104 (1978) (over-regulation); Nollan v. Cal. Coastal Comm n, 483 U.S. 825 (1987) (land use exactions); see also Dolan v. City of Tigard, 512 U.S. 374 (1994). In Nollan v. California Coastal Commission, the Court held that land use exactions require an essential nexus between the nature of the condition and a public need generated by the proposed development. 483 U.S. at 837. The Court again considered the constitutionality of land use exactions in Dolan v. City of Tigard, adding an additional requirement that there be rough proportionality between the exaction and the harms caused by the regulated activity. 512 U.S. at 391. After the Court articulated the heightened scrutiny of the Nollan/Dolan standard for exactions, courts have struggled with the application. Does the standard apply to all types of 2

9 exactions or only to land based exactions? Two cases, Erhlich and Lingle, have dealt with the subject matter of exactions but neither developed a bright line application. In Erhlich, the Court remanded a monetary exaction claim for further consideration in light of the recent Dolan decision. Ehrlich v. City of Culver City, 114 S.Ct (1994). In Lingle, the Court, in dicta, gave an overview of all regulatory takings analyses and could be read to imply that the Nollan/Dolan test would apply to land based exactions only. Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005). Other courts have since used both of these cases to go either way on this exactions question. A. The Nollan/Dolan standard does not apply to monetary exactions. Even before Lingle, monetary exactions had been treated by some courts as different from real property exactions. See Clajon Prod. Corp. v. Petera, 70 F.3d 1566, 1578 (10th Cir. 1995) (declining to apply Dolan to fees imposed on landowners as a condition of exercising their property right to hunt on their own land because no physical occupation is involved); Commercial Builders of N. Cal. v. City of Sacramento, 941 F.2d 872, (9th Cir. 1991) (declining to extend holding in Nollan to purely monetary exaction); Commonwealth Edison Co. v. United States, 271 F.3d 1327, 1340 (Fed. Cir. 2001) ( Requiring money to be spent is not a taking of property ); McCarthy v. Leawood, 894 P.2d 836 (Kan. 1995) (concluding that nothing in Dolan supports making the critical leap from property dedications to impact fees). "Unlike real or personal property, money is fungible." United States v. Sperry Corp., 493 U.S. 52, 62 n.9 (1989). For some of these courts, Lingle enforced the distinction between the traditional Takings Clause real property dedications and the mere imposition of the obligation to pay money. The Ninth Circuit has held that monetary exactions, which are imposed legislatively and advance a 3

10 related interest to the new development, are not analyzed under the Nollan/Dolan standard. McClung v. City of Sumner, 548 F.3d 1219, 1225 (9th Cir. 2008). The Court declined to determine the appropriateness of using the Nollan/Dolan standard for monetary exactions, which are adjudicatively imposed. Id. at n.3. The lack of a physical invasion of land is generally the focal point of courts reasoning for not using the heightened standard. See Kamaole Pointe Dev. LP v. County of Maui, 573 F. Supp. 2d 1354, 1370 (D. Haw. 2008) (declining to apply the Nollan/Dolan standard where there is no physical invasion of land); Ramsey Winch, Inc. v. Henry, 555 F.3d 1199, 1209 (10th Cir. 2009) ( A per se taking in the constitutional sense requires a permanent physical occupation or invasion, not simply a restriction on the use of private property ); Iowa Assur. Corp. v. City of Indianola, 650 F.3d 1094, (8th Cir. 2011) (declining to apply the takings test articulated in Nollan because there was no dedication of land); Conklin Dev. v. City of Spokane Valley, 448 Fed. Appx. 687, 689 (9th Cir. 2011) (unpublished; requiring a per se physical taking to apply Nollan/Dolan). In West Linn Corporate Park, L.L.C. v. City of West Linn, 240 P.3d 29 (Or. 2010), cert denied, 132 S. Ct. 578 (2011), the Supreme Court of Oregon reasoned that because the City could not use its power of eminent domain to compel the off-site mitigation or monetary exaction, the Nollan/Dolan standard was not applicable. Id. at In the unpublished companion case in the Ninth Circuit, the court there came to the same conclusion based on the fact that there was no dedication of real property but only the obligation for the property owner to use its own money, which the court characterized as personal property. West Linn Corporate Park L.L.C. v. City of West Linn, 428 Fed. Appx. 700, 702 (9th Cir. 2011). Perhaps the strongest case for not applying Nollan/Dolan after Lingle comes from the recent federal circuit court decision in Alto Eldorado Partnership LLC v. County of Santa Fe, 4

11 New Mexico, 634 F.3d 1170 (10th Cir. 2011), cert. denied, 132 S. Ct. 246 (2011). In a decision that found Nollan/Dolan inapplicable in virtually every sense, the appeals court sharply limited their application to only physical takings, flatly rejecting all attempts to apply the doctrine to any other interference with property rights, as well as the application of the doctrine of unconstitutional conditions. The appeals court held unequivocally that Nollan/Dolan are Fifth Amendment takings cases and that any attempt to apply them further after Lingle must fail (634 F.3d at ). B. The Nollan/Dolan standard does apply to monetary exactions. After the Supreme Courts remand in Erhlich for analysis of a monetary exaction under the Nollan/Dolan standard, many courts found sufficient direction to apply the heightened scrutiny to monetary exactions. See Ehrlich v. City of Culver City, 911 P.2d 429, 447 (Cal. 1996) (applying the Nollan/Dolan standard for recreational fees: But when a local government imposes special, discretionary permit conditions on a development by individual property owners as in the case of the recreational fee at issue in this case Nollan and Dolan require that such conditions, whether they consist of possessory dedications or monetary exactions, be scrutinized under the heightened standard ); Home Builders Ass'n v. City of Beavercreek, 729 N.E.2d 349, 357 (Ohio 2000) (adopting the Nollan/Dolan standard for impact fee ordinances: Once a reasonable relationship is found to exist between the city s need to construct new roadways and the traffic generated by a new development, the second prong of the test requires Beavercreek to demonstrate a reasonable relationship between the fee imposed on a developer and the benefits accruing to the developer. ); Benchmark v. City of Battle Ground, 972 P.2d 944, 950 (Wash. Ct. App. 1999) (applying Nollan/Dolan for off-site mitigation requirement); Town of Flower Mound v. Stafford Estates L.P., 135 S.W.3d 620, (Tex. 2004) (applying the 5

12 Nollan/Dolan standard because the court finds no important distinction between a dedication of real property and the requirement of off-site mitigation.); Twin Lakes Dev. Corp. v. Town of Monroe, 801 N.E.2d 821, 825 (N.Y. 2003) (applying Nollan/Dolan to recreational impact fees). Even after Lingle, courts have still determined that Nollan/Dolan applies to non-property exactions. Sefzik v. City of McKinney, 198 S.W.3d 884, (Tex. App. 2006); B.A.M. Dev., L.L.C v. Salt Lake County, 196 P.3d 601, (Utah 2008) (applying Nollan/Dolan standard); Toll Bros., Inc. v. Bd. of Chosen Freeholders of Burlington, 944 A.2d 1, 13 (N.J. 2008) (applying Nollan/Dolan standard to developer s share of roadway improvement costs); City of Carrollton v. RIHR Inc., 308 S.W.3d 444 (Tex. App. 2010); Greenville Concerned Citizens, Inc. v. Floyd Cnty. Plan Comm n, No. 22A CV-92, 2009 Ind. App. Unpub. LEXIS 1713, *23-26 (Ind. Ct. App. Oct. 14, 2009) (applying, without holding, the Nollan/Dolan standard to the monetary exaction). One court has found that the question of whether money can constitute property, which can be taken under the Takings Clause, and thus analyzed under Nollan/Dolan, is to be decided under state law. City of New Orleans v. BellSouth Telcoms., Inc., No , 2011 U.S. Dist. LEXIS , *27-28 (E.D. La. Oct. 27, 2011) (holding that under Louisiana state law, money is property which can be taken under the Takings Clause); but see West Linn Corporate Park L.L.C. v. City of West Linn, 428 Fed. Appx. 700 (9th Cir. 2011) (characterizing money as personal property). The New York court has clarified post-lingle that the Nollan/Dolan standard applies to both physical dedications of land and in-lieu-of fees. Consumers Union of U.S., Inc. v. State, 840 N.E.2d 68, (N.Y. 2005) (citing Twin Lakes Dev. Corp. v. Town of Monroe, 801 N.E.2d 821, (N.Y. 2003) (applying Nollan/Dolan to impact fees) and In re Smith v Town of Mendon, 822 N.E.2d 1214 (2004) (finding that 6

13 Nollan/Dolan only applies to dedications of significant property rights (the right to exclude) but not lesser property rights (right to apply for a variance))). III. The Koontz Decision and Analysis A. The Decision in Detail The facts in the case are ably set out in papers and materials submitted by others participating in this webinar. Suffice it to observe that the Court focused on those parts of the decisions below which upheld the state agency requirement that Koontz spend money to mitigate the cost of his developing part of the subject property which constituted a wetland. Koontz declined to do so and the District consequently denied the wetland resources management permit required under state law. This, observed the Court, raised questions of federal constitutional law on which lower state and federal courts were divided, leading to the grant of a petition for certiorari to review them. First, the Court addressed the District s position that, since it had denied the permit because the applicant refused to comply with the permit condition, the nexus and proportionality standards of Nollan/Dolan did not apply. Initially, the Court observed that Nollan and Dolan allow government to condition approval of a permit on a dedication of property to the public so long as there is a nexus and rough proportionality between the property that the government demands and the social costs of the applicant s proposal. Slip op. at 8. Then the court clearly stated: The principles that undergird our decisions in Nollan and Dolan do not change depending on whether the government approves a permit on the condition that the applicant turn over property or denies a permit because the applicant refuses to do so. Slip op. at 8-9. Further observing that it had often concluded that denials of governmental benefits were impermissible under the unconstitutional conditions doctrine, the Court admonished: A contrary rule would be 7

14 especially untentable in this case because it would enable the government to evade the limitations of Nollan and Dolan simply by phrasing its demands for property as conditions precedent to permit approval.... Our unconstitutional conditions cases have long refused to attach significance to the distinction between conditions precedent and conditions subsequent. Slip op. at 9. Next, the Court addressed the question which caused the major split among lower state and federal courts: We turn to the Florida Supreme Court s alternative holding that petitioner s claim fails because respondent asked him to spend money rather than give up an easement on his land. Slip op. at 14. Noting that such an argument would render it easy for land-use permitting officials to evade Nollan/Dolan limitations by simply substituting an in-lieu fee for an exaction of an interest in real property like an easement, the Court held: For that reason and for those that follow, we reject respondent s argument and hold that so-called monetary exactions must satisfy the nexus and proportionality requirements of Nollan and Dolan. Slip op. at 15. The property interest necessary for cases such as these is not a required dedication of land itself but rather the effect of any exaction on the owner s subject parcel: unlike Eastern Enterprises, the monetary obligation burdened petitioner s ownership of a specific parcel of land.... The fulcrum this case turns on is the direct link between the government s demand and a specific parcel of property. Slip op. at The dissent makes much of the confusion between impact fees and property taxes/user fees that will result from the majority opinion. However, as the Court rightly observes, the two are fundamentally different and based on fundamentally different legal theories. Land development conditions such as impact fees and other monetary exactions find their authority and roots in government exercise of the police power. Property taxes, on the other hand, are 8

15 rooted in government authority to raise revenue the power to tax, which requires no demonstration of nexus and proportionality to any activity by the taxpayer. User fees are merely charges on users for services rendered by the charging government, like building permit fees. B. The Decision Applied: Impact Fees, Mitigation Fees, In-Lieu Fees, and Affordable Housing Set-Asides 1. In-Lieu Fees Clearly and most obviously the nexus and proportionality requirements of Nollan and Dolan are now applicable to fees often charged by local government in lieu of a dedication of a property interest per se. Thus, for example, where local government charges such a roadbuilding fee as a condition for approving a residential subdivision rather than requiring dedication of road and street easements, the fee, like the easements, will have to bear a nexus to the need for roads generated by the subdivision, and the fee will have to be proportional to that generated need as well. The Court specifically singled out such in-lieu fees in its opinion, as noted above in Part A. 2. Impact Fees The decision by its terms also applies to impact fees and mitigation fees as well, the latter for the obvious reason that it was a species of mitigation fee which Koontz challenged in this case. The same is true for the ubiquitous impact fee charged by government to pay for public facilities such as schools, public parks, and wastewater treatment plants. All are clearly embraced by the Court s term monetary exaction and thus all are now subject to nexus and proportionality requirements of Nollan and Dolan. 3. Mandatory Inclusionary Affordable/Workforce Housing Set-Asides: Sic Transit But what of the linkage of affordable/workforce housing fees or minimum set-asides of such housing increasingly often attached to land development permits of all kinds? Surely the 9

16 provision of such housing is a public good and hardly any court in the country considers it anything but a governmental public use or purpose also covered by a state or federal constitutional welfare clause. Nevertheless, because such fees are a form of exaction, they are subject to the essential nexus takings test under Nollan. Nollan, 483 U.S. at 837. See Commercial Builders of N. Cal., 941 F.2d at 874. Under Nollan, a permit condition that serves the same legitimate police-power purpose as a refusal to issue the permit should not be found to be a taking if the refusal to issue the permit would not constitute a taking. Nollan, 483 U.S. at 836 (emphasis added). In addition, under Nollan, the government bears the burden of proving this nexus. Dolan, 512 U.S. at 391 n.8 (citing Nollan, 483 U.S. at 836). In the context of linkage fees in particular, one treatise explains that linkage fees satisfy this test only if the municipality can show that downtown development contributes to the housing problem the linkage exaction is intended to remedy. 1 LAND USE LAW For example, in Commercial Builders of N. Cal. v. Sacramento, 941 F.2d 872 (9th Cir. 1991), the Ninth Circuit held that an ordinance which imposed a linkage fee in connection with the issuance of permits for nonresidential development of the type that will generate jobs, (i.e., a workforce affordable housing requirement) was constitutional under Nollan. Id. at 875. Plaintiffs challenged the ordinance directly on Nollan grounds: lack of nexus or connection between the development and the affordable housing condition. First, the court addressed the holding of Nollan: where there is no evidence of a nexus between the development and the problem that the exaction seeks to address, the exaction cannot be upheld. Id. The court then explained that the [o]rdinance was implemented only after a detailed study revealed a substantial connection between development and the problem to be addressed. Id. The Court related at some length what the City of Sacramento did to establish 10

17 the substantial connection between the development and the problem of affordable housing. First, it commissioned a study of the need for low-income housing, the effect of nonresidential development on the demand for such housing, and the appropriateness of exacting fees in conjunction with such developments to pay for housing. The study: Estimat[ed] the percentage of new workers in the developments that would qualify as low-income workers and would require housing. [The study] also calculated fees for development.... Also as instructed, however, in the interest of erring on the side of conservatism in exacting the fees, it reduced the final calculation by about one-half. Based upon this study, the City of Sacramento enacted the Housing Trust Fund Ordinance [which]... included the finding that nonresidential development is a major factor in attracting new employees to the region and that the influx of new employees creates a need for additional housing in the City. Pursuant to these findings, the Ordinance imposes a fee in connection with the issuance of permits for nonresidential development of the type that will generate jobs. Id. at 873. Consequently, the court found that the nexus between the fee provision here at issue, designed to further the city s legitimate interest in housing, and the burdens caused by commercial development is sufficient to pass constitutional muster. Id. Even courts that had declined to apply heightened Nollan/Dolan scrutiny to housing fees nonetheless apply some form of relationship or causation test. For instance, in San Remo Hotel L.P. v. City & County of San Francisco, 41 P.3d 87 (Cal. 2002), although the California Supreme Court reaffirmed that legislatively imposed, ministerial impact fees are not subject to the tests in Nollan or Dolan, it nonetheless required that there be a reasonable relationship between the fee and the deleterious impacts for the mitigation of which the fee is collected. Id. at (citations omitted). Similarly, in Holmdel Builders Ass n v. Twp. of Holmdel, although the Supreme Court of New Jersey concluded that legislative fees are not subject to the heightened scrutiny of its but-for, rational-nexus test, it still required some relationship between the development and the harm caused. 583 A.2d 277, 288 (N.J. 1990). The court 11

18 essentially explained that the relationship between the private activity that gives rise to the exaction and the public activity to which it is applies, must be founded on [an] actual, albeit indirect and general, impact. Id. Notably, the only part of the Nollan test that was not applied in San Remo or Holmdel Builders Ass n, is the shifting of the burden of proof to the government. That the burden of proof shifts to the government was not clear in Nollan; however, the Court clarified this in Dolan. There, the Court cited to Nollan when it said that the burden properly rests on the city. Dolan, 512 U.S. at 391 n.8 (citing Nollan, 483 U.S. at 836). What is important, however, is that all jurisdictions at least require some form of nexus between the harm caused by the development and the interest which the exaction purportedly serves. Thus, even under the California or New Jersey approach, Nollan s requirement that the same interest be served by the exaction, still applies, albeit in different form than Nollan, 483 U.S. at 836. After Koontz, the test must now be identical to Nollan. The second issue is, provided the regulation satisfies a nexus requirement, what reasonable percentage of affordable or workforce housing will meet the constitutional proportionality test under Dolan or some similar proportionality requirement. As one recent commentator noted: [a]n inclusionary zoning ordinance deserves... judicial deference... provided that the program addresses a lack of affordable housing at a level proportionate to each development and it can be defended through sufficient planning by each municipality. Lerman, Mandatory Inclusionary Zoning The Answer to the Affordable Housing Problem, 33 B.C. ENVTL. AFF. L. REV. 383, (2006). Much is clearly dependent upon the circumstances in each case, but as one treatise on land use has observed, while [s]et-aside percentages and 12

19 development size requirements vary across the country[,] [m]ost set-asides range from ten to twenty percent. 3 ZONING AND LAND USE CONTROLS 3.07 (2007). The handfuls of cases upholding inclusionary housing programs are easily distinguishable. Commercial Builders of Northern California v. City of Sacramento is already discussed above, where the Ninth Circuit held that a City of Sacramento ordinance was constitutional under Nollan. To reiterate: We... agree with the City that Nollan does not stand for the proposition that an exaction ordinance will be upheld only where it can be shown that the development is directly responsible for the social ill question. Rather, Nollan holds that where there is no evidence of a nexus between the development and the problem that the exaction seeks to address, the exaction cannot be upheld. Where, as here, the Ordinance was implemented only after a detailed study revealed a substantial connection between development and the problem to be addressed, the Ordinance does not suffer from the infirmities that the Supreme Court disapproved in Nollan. Commercial Builders of N. Cal., 941 F.2d at 875. Also in Home Builders Ass n of Northern California v. City of Napa, the city enacted an inclusionary zoning ordinance requiring that 10% of all newly constructed units must be affordable, but again only after the city made significant findings and studied possible affordable housing solutions, much like the City of Sacramento. Home Builders Ass n of N. Cal., 108 Cal. Rptr. 2d 60, 62 (Cal. Ct. App. 2001). Moreover, the court specifically recognized that [t]he City s inclusionary zoning ordinance imposes significant burdens on those who wish to develop their property. Id. at 64. Therefore, the Court noted specifically that the ordinance also provides significant benefits to those who comply with its terms... [including] expedited processing, fee deferrals, loans or grants and density bonuses. Id. Also, Napa supplied over seven hundred pages of documentation for its program, and limited its required set-aside to only 10%. 13

20 Moreover, this decision must be read in the context of California s statutory mandatory bonus requirements. CAL. GOV. CODE (West, Westlaw through Ch. 10 of 2013 Reg. Sess.). As recently amended and effective on January 1, 2005, the statute requires a 20% density bonus as soon as a developer reaches a set-aside threshold of 5% of its units affordable to very low income households or 10% of its units are affordable to low income households, and increases in density bonus increments of 2.5% for each additional increase of 1% of very low income units, 1.5% for each additional 1% in low income units, and 1% for increase in moderate income units, up to a maximum density bonus of 35% when a project provides either 11% very low income units, 20% low income units, or 40% moderate income units. The California Court of Appeals echoed the decision in San Remo by failing to apply the Nollan/Dolan intermediate scrutiny test to a legislatively enacted ordinance but still requiring a reasonable relationship between the ordinance s means and ends. Bldg. Indus. Ass n of Cent. Cal. v. City of Patterson, 90 Cal. Rptr. 3d 63 (Cal. Ct. App. 2009). There, the city entered into a development agreement that provided for an affordable housing in-lieu fee of $734 per market rate unit to be paid by the developer to the city with a caveat that allowed for a reasonably justified increase in the fee based on the findings of an updated affordable housing fee analysis. Id. In accordance with the updated analysis, the city raised the affordable housing fee from $734 to $20,946 per market rate unit. Id. The court held that the development agreement s increased affordable housing in-lieu fee was not reasonably justified because the fee had no reasonable relationship to the deleterious public impact the planned sub-division would have on affordable housing. Id. at 73. Although the court s ruling only held that the development agreement s increased affordable housing in-lieu fee was not reasonably justified and thus 14

21 impermissible, the language of the court s decision goes much further than this development agreement: [t]he level of constitutional scrutiny applied by the court in San Remo Hotel must be applied to City s affordable housing in-lieu fee and is one of the legal requirements incorporated into the Development Agreement. Id. In developing the affordable housing in-lieu fee, the city examined subsidies that would bridge the affordability gap between moderate, low-, and very low-income households and the price of market rate units. The city calculated the total subsidy that would be required to bridge the affordability gap based on the requirement of 642 units of affordable housing allocated to the city by the 2001 to 2002 Regional Housing Needs Assessment for Stanislaus County. This total subsidy of $73.5 million was spread over the 3,507 unentitled units left to be constructed according to the city s general plan. Although this calculation has a direct relationship to the city s overall need for affordable housing, it has no relationship to the effects of a new development on the need for affordable housing. While the court never comments on the constitutionality of the original fee, in concluding that the increased fee violated the development agreement, the court clearly finds that even outside of the development agreement context, the new in-lieu housing fee is impermissible: the fee calculations... do not support a finding that the fees to be borne by Developer s project bore any reasonable relationship to any deleterious impact associated with the project. City of Patterson, 90 Cal. Rptr. 3d at 74. There is now no basis whatsoever for government saddling the developer of a residential housing project with a mandatory affordable/workforce housing set aside or quota (so-called inclusionary zoning or linkage). Only commercial projects which demonstrably generate a need for nearby workforce housing will pass the Nollan/Dolan nexus and proportionality tests as 15

22 explained by the Court in Koontz. Thus, for example, California needs to get it right. Recently, a California appeals court got it very wrong. In California Building Industry Ass n v. City of San Jose, Cal. Rptr. 3d (6th Dist. 2013) the court of appeals overturned the trial court which had applied a nexus standard to strike down a mandatory affordable housing requirement imposed by the City on a residential development. According to the Court of Appeals, the standard is whether the housing set-aside requirement was justified under the general welfare clause of the City s police power like a traditional zoning ordinance not whether there was a nexus or reasonable relationship of the housing requirement to any need or problem generated by the market-price housing development. The Court looked to California s Housing Accountability Act which recognizes lack of housing as a critical problem and requires local government to address regional housing needs through implementing housing elements in a community general plan. This the City did by passing the challenged inclusionary housing ordinance, with incentives for affordable housing constructed on-site and waivers if there was no reasonable relationship between the impact of the proposed residential development and the affordable housing set-asides required by the ordinance. This case is at odds with another appellate district court s decision in City of Patterson, 90 Cal. Rptr. 3d 63 (2009), which, as noted above, could find no reasonable relationship between a large affordable housing mitigation fee and a market price residential development, and also arguably with the Ninth Circuit Court of Appeals decision in Commercial Builders of Northern California v. City of Sacramento, 941 F.2d 872 (9th Cir. 1991), which found such set-asides valid for commercial developments (to house low-paid workers) but only after studies showing the need for workforce housing generated by the 16

23 commercial development. Indeed, the 2013 California case does not cite Commercial Builders at all. Following Koontz, attorneys for the building industry are petitioning for rehearing. IV. Conclusion: Where Do We Go From Here? After Koontz, state and local government will obviously be required to consider both nexus and proportionality when placing conditions on land development permits, whether or not such conditions require the dedication of interests in land or exactions of money. This is true whether the condition is precedent (agree to the condition or no permit) or subsequent (here s your permit, but only on the following conditions). How this will play out in practice may be another story. At least two senior commentators on the land use scene suggest either that state and local governments will simply stop negotiating entirely on land use permitting matters and/or leave it to a landowner to offer sweeteners like workforce housing, oversized water and sewer pipes and community recreational facilities to facilitate their permitting and rezoning requests. See Michael M. Berger, Commentary, Supreme Court Limits Land Development Permit Conditions, June 26, 2013, Supreme_Court_Limits_Conditions.aspx; John Echeverria, Op-Ed., A Legal Blow to Sustainable Development, N.Y. TIMES, June 26, 2013, The latter would convert the land development permitting process to something akin to Virginia s infamous proffer system which virtually requires such offers. An equally likely alternative is more frequent use of the development agreement. Development Agreements are essentially statutorily-authorized agreements between local governments and landowners for the guidance of a multiphase land development. Authorized by 17

24 statute in thirteen states (most prominently Hawaii and California), the development agreement is designed in part to permit local government to require public facilities and improvements beyond those which it may legally require as generated by a proposed land development project. Thus, for example, a local government could require adequate streets and parks to serve the projected residents of a land development project, but under the rules laid down by the United States Supreme Court in Koontz, Nollan, and Dolan, it could not require an expensive and lengthy bypass road to alleviate preexisting traffic conditions. Under a development agreement, it could do so. Widely used in California, the development agreement has withstood legal challenges there that it authorizes the bargaining away of the police power or illegally binds future elected governments because the rights of the landowner to proceed with the development vest for a period of ten to twenty years. Over one thousand have been successfully negotiated. See D. CALLIES, C. BARCLAY AND J. TAPPENDORF, DEVELOPMENT BY AGREEMENT (2012). Finally, the Koontz decision leaves unresolved a last major constitutional conditions/land development conditions issue: whether an exaction legislatively applied is free from Nollan/Dolan nexus and proportionality scrutiny, as compared with a quasi-judicial, ad hoc, oneoff exaction, which is presumably not. While it is relatively well settled that the Nollan/Dolan analysis applies to exactions levied by adjudicative governmental agencies on an ad hoc basis, there is a split of authority on whether to apply the tests to legislative determinations. Parking Ass n of Ga., Inc. v. City of Atlanta, 515 U.S. 1116, 1117 (1995) (Thomas, J., dissenting), denying cert. to 450 S.E.2d 200 (Ga. 1994). See also David L. Callies, Regulatory Takings and the Supreme Court: How Perspectives on Property Rights Have Changed from Penn Central to Dolan, and What State and Federal Courts Are Doing About It, 28 STETSON L. REV. 523, (1999), David L. Callies & Glenn H. Sonoda, Providing Infrastructure for Smart Growth: Land 18

25 Development Conditions, 43 IDAHO L. REV. 351, 367 (2007), Christopher T. Goodin, Dolan v. City of Tigard and the Distinction Between Administrative and Legislative Exactions: A Distinction Without a Constitutional Difference, 28 U. HAW. L. REV. 139, 148 (2005), Jane C. Needleman, Exactions: Exploring Exactly When Nollan and Dolan Should Be Triggered, 28 CARDOZO L. REV. 1563, 1574 (2006). In his dissent to the denial of certiorari in Parking Ass n of Georgia, Inc. v. City of Atlanta, Justice Thomas noted that [t]he lower courts are in conflict over whether Tigard's test for property regulation should be applied in cases where the alleged taking occurs through an act of the legislature. 515 U.S. at Recall that in Dolan, where the Court added a second requirement to evaluating the constitutionality of governmental exactions, it left unclear what distinction, if any, exists between adjudicative and legislative exactions. Chief Justice Rehnquist, in footnote eight, distinguished the Dolan case from Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926): [h]ere, by contrast, the city made an adjudicative decision to condition petitioner's application for a building permit on an individual parcel. Dolan, 512 U.S. at 391. Another section of the opinion implies that the Nollan/Dolan analysis applies only to exactions arrived at by adjudicative decisions: The sorts of land use regulations discussed in the cases just cited, however, differ in two relevant particulars from the present case. First, they involved essentially legislative determinations classifying entire areas of the city, whereas here the city made an adjudicative decision to condition petitioner's application for a building permit on an individual parcel. Id. at 385. The Court did not conclusively settle the issue of whether legislative exactions are subject to Nollan/Dolan analysis, but many courts have ruled that the Dolan test does not apply to legislative decisions. 19

26 For instance, in Home Builders Ass n of Central Arizona v. City of Scottsdale, the Supreme Court of Arizona held that [b]ecause the Scottsdale case involves a generally applicable legislative decision by the city, the court of appeals thought Dolan did not apply. We agree, though the question has not been settled by the Supreme Court. 930 P.2d 993, 1000 (Ariz. 1997). The Supreme Court of Georgia adopted similar reasoning in rejecting a Dolan analysis of a legislatively enacted barrier and landscaping zoning requirement. Parking Ass'n of Ga., Inc. v. City of Atlanta, 450 S.E.2d 200, 203 n.4 (Ga. 1994), cert. denied, 515 U.S (1995). In Krupp v. Breckenridge Sanitation District, 19 P.3d 687 (Colo. 2001), the Supreme Court of Colorado also held that the Nollan/Dolan test did not apply, because the impact fee exacted was based on legislation. 19 P.3d at In Ehrlich v. City of Culver City, the Supreme Court of California noted that It is not at all clear that the rationale (and the heightened standard of scrutiny) of Nollan and Dolan applies to cases in which the exaction takes the form of a generally applicable development fee or assessment cases in which the courts have deferred to legislative and political processes to formulate public programs adjusting the benefits and burdens of economic life to promote the common good. 911 P.2d at 446. Other jurisdictions, however, have applied the Nollan/Dolan test in the context of legislative exactions. In Schultz v. City of Grants Pass, the Oregon Court of Appeals applied the Dolan test to a City ordinance requiring the dedication of rights-of-way for street widening purposes. 884 P.2d 569 (Or. Ct. App. 1994); see also J.C. Reeves Corp. v. Clackamas Cnty., 887 P.2d 360 (Or. Ct. App. 1994). The court reasoned that the character of the restriction remains the type that is subject to the analysis in Dolan. In drawing its distinction between the legislative land use decisions that are entitled to a presumption of validity and the exactions that are not, the Supreme Court noted that what triggers the heightened scrutiny of exactions is the 20

27 fact that they are "not simply a limitation on the use" to which an owner may put his or her property, but rather a requirement that the owner deed portions of the property to the local government. Schultz, 884 P.2d at 573. The Oregon Court of Appeals has subsequently applied Nollan/Dolan to legislative exactions. J.C. Reeves Corp., 887 P.2d at 365 ( The nature, not the source, of the imposition is what matters ) (citing Dolan, 512 U.S. at 383). In Dakota, Minnesota & Eastern Railroad v. South Dakota, the United States District Court for the District of South Dakota considered a state statute that required railroad companies to dedicate an easement in order to obtain development permits. 236 F. Supp. 2d 989 (D.S.D. 2002), aff d, 362 F.3d 512 (8th Cir. 2004). The court held that the legislative nature of the exaction does not mean that a regulatory taking analysis is the wrong framework for this case. Dakota, Minn. & E. R.R, 236 F. Supp. 2d at The Supreme Court of Washington and Illinois Court of Appeals have also applied the Nollan/Dolan test to legislative exactions. Amoco Oil Co. v. Vill. Of Schaumberg, 661 N.E.2d 380, (Ill. App. Ct. 1995) (applying Nollan/Dolan analysis to a legislative land dedication requirement); Sparks v. Douglas Cnty., 904 P.2d 738 (Wash. 1995) (en banc) (holding a road dedication requirement reviewable under Dolan). In Town of Flower Mound v. Stafford Estates, cited supra, the Texas Supreme Court suggested, without holding, that it also favors applying the Nollan/Dolan test to legislatively-imposed exactions: We think the Town s argument, and the few courts that have accepted it, make too much of the Supreme Court s distinction in Dolan. By the same token, we need not risk error in the opposite direction by undertaking to describe here in the abstract whether the Dolan standard should apply to all legislative exactions whatever that really means imposed as a condition of development. 135 S.W.3d at

28 Justice Thomas, in his aforementioned dissent to the Court s denial of certiorari in Parking Association of Georgia, questioned the legislative/adjudicative distinction in the context of exactions: It is hardly surprising that some courts have applied Tigard s rough proportionality test even when considering a legislative enactment. It is not clear why the existence of a taking should turn on the type of governmental entity responsible for the taking. A city council can take property just as well as a planning commission can. Moreover, the general applicability of the ordinance should not be relevant in a takings analysis.... The distinction between sweeping legislative takings and particularized administrative takings appears to be a distinction without a constitutional difference. 515 U.S. at (Thomas, J. & O Connor, J., dissenting). The same United States Supreme Court has yet to decide whether legislative exactions should be analyzed under Dolan and the lower courts remain in disagreement over the issue. A final and ironic observation: Koontz may yet lose under application of Florida law to his particular circumstances. The court noted that Koontz s damage claims depend on Florida law issues either not raised in the Petition for Writ of Certiorari or not addressed by the Florida courts. Slip op. at

29 American Bar Association Section of State and Local Government Law 2013 Annual Meeting Koontz Presents Some Answers and Many Questions Steven J. Eagle

30 Koontz Presents Some Answers and Many Questions By Steven J. Eagle* On June 25, 2013, the U.S. Supreme Court handed down Koontz v. St. Johns River Water Management District, S.Ct., 2013 WL (June 25, 2013). Justice Alito wrote for the Court, and Justice Kagan issued a dissent joined by Justices Ginsburg, Breyer, and Sotomayor. The 5-4 Koontz decision sketches an extension of the Court s approach to land use development approvals that are conditioned on exactions. The significance of Koontz might be modest or great, depending on how the case is interpreted by state and lower federal courts, and ultimately by the Supreme Court itself. A. The Holding in Brief I. The Koontz Decision Koontz reaffirmed the heightened scrutiny accorded demands that landowners relinquish real property interests as a condition of land use development approvals, first enunciated by the Court in Nollan v. California Coastal Comm n, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). The Court held that the government s demand for property from a land-use permit applicant must satisfy the requirements of Nollan and Dolan even when the government denies the permit and even when its demand is for money. Koontz, 2013 WL at *16. The Justices unanimously agreed the Nollan-Dolan principle is applicable to denials of development approvals because owners refuse to relinquish the demanded property interests. However, the majority and dissenting opinions differed sharply on whether Nollan-Dolan should be extended to demands for monetary exactions, on the mechanisms by which Nollan-Dolan should be enforced where there is no actual transfer of property from the landowner to the State, and on the effects that the Court s decision in Koontz is apt to have on government regulation of real property uses generally. * Professor of Law, George Mason University, Arlington, VA 22201, seagle@gmu.edu. This paper was prepared for presentation at the 2013 Annual Meeting of the American Bar Association, joint program on Planning and Takings in the Aftermath of Koontz, sponsored by the Sections on State and Local Government Law and Real Property, Probate and Trust Law, on August 8, 2013.