Photo by Uncle D on Flickr.
You’ve probably heard a lot about the Supreme Court’s decisions last week on the Voting Rights Act and same-sex marriage. But the court also decided a case on planning law which could make it more difficult for communities to negotiate public benefits during the process of land development.
Last Tuesday, the court released its decision in Koontz v. St. Johns River Water Management District, a planning law case from central Florida. The court ruled that two important tests must apply to a common technique called “monetary exactions.”
An “exaction” is when a city or county requires a developer provide something of value, generally real estate or money, to mitigate negative impacts of a planned project in return for a permit. For example, a planning agency could require the developer of a residential subdivision to dedicate some land to protect waterways from runoff.
This case concerns whether a particular type of exaction is the same as taking of property, which the Fifth Amendment forbids without “just compensation.”
The facts of the case
Koontz purchased 15 acres east of Orlando. Most of the property is wetlands. The St. Johns River Water Management District is responsible for preserving Florida’s wetlands in that part of the state.
In the mid-1990s, Koontz applied for a permit to build on 3.7 acres of his property, including some wetlands, but offered to place a permanent conservation easement over the rest. The Water Management District said that wasn’t enough. They wanted no net loss of wetlands.
They gave Koontz two options: he could pay to restore wetlands nearby, or he could limit his development to just 1 acre and conserve the remaining 14 acres. Koontz said no to both, and his permit for development was denied. He sued, and the case slowly made its way to the Supreme Court.
Takings and regulatory takings
Most takings involve eminent domain. For example, if the transportation department wanted to build a road across your property, you could sell it to them. If you don’t want to sell, however, they can still take your land, but they have to pay you for it.
What if land isn’t literally taken from a property owner, but the use is restricted so that the owner is giving up some property rights? That’s called a “regulatory taking.” It’s when a regulation reduces the value of property.
The Supreme Court says that regulations become takings when they involve something physically occupying the property (like Loretto v. Teleprompter Manhattan, about installing wires on a building) or when they “go too far” (Pennsylvania Coal Co. v. Mahon. Unfortunately, it can be difficult to determine what is going too far.
While the court recognizes that some exactions are necessary, sometimes they count as takings. To decide this, the Supreme Court established criteria known as the Nollan and Dolan tests.
In Nollan v. California Coastal Commission (1987), the court ruled that there had to be an “essential nexus” (relationship) between the regulation’s intent and the exaction.
The Nollans wanted a permit to build a new beachfront home in Ventura County. The California Coastal Commission required they dedicate a public easement for pedestrian access along the beach portion of their lot as a tradeoff for blocking the view of the water from the street.
The commission claimed that pedestrian access offset the loss of visual access, but because the Commission had an ongoing program to obtain beach easements, the court decided that the required easement did not really mitigate the impact of granting the building permit. Thus, it counted as a taking.
Later, in Dolan v. Tigard (1994), the court introduced a new test, “rough proportionality.” Under that test, the exaction required by a regulation needed to be roughly proportional to the impact the regulation was addressing. The government must actually quantify that impact before the exaction, rather than simply make an argument after the fact.
Specifically, Dolan wanted to enlarge her hardware store. The city of Tigard, Oregon required her to dedicate land to build a greenway (for flood control) and a bike path across her property. The court ruled that while it the bike path may indeed offset any increase in traffic, Tigard had not actually done an analysis to show that the requirement was a reasonable way to mitigate the increased traffic.
As with the Nollan case, the court said that if the city were simply requiring Dolan to dedicate the land because the city needed it for the bike path, then the city should pay for the land. Without an analysis, the the city can’t know whether the requirement is roughly proportional to the harm it seeks to mitigate.
While the exactions in Nollan and Dolan involved dedicating land for some purpose, exactions can also be monetary: regulations can require land owners to pay for something, rather than giving up land.
An example of a monetary exaction
Since this is fairly complex, let’s take a look at an example.
A developer wants to build a 2 million square foot shopping center in an area with no transit. The two roads passing the site are both two lanes wide. In its analysis, the planning department finds that the shopping center will increase car traffic by 40%.
To get the development approved, the planning agency asks the developer to pay for stoplights at each of the shopping center’s entrances, add turning lanes from the main road, build sidewalks, and rebuild the intersection, which planners expect will increase road capacity by 35%.
Those exactions pass both tests. There’s a relationship between the development’s impact (more car trips) and the exaction (more road capacity). And there’s proportionality because the traffic is expected to increase by 40% and capacity will increase by 35%.
But if the developer had to dedicate land for a new school, a court could find that an unconstitutional taking because a shopping center doesn’t add students, so there’s no relationship between it and needing more schools.
Or, if the shopping center is on a parcel where the master plan showed an interchange, and the agency requires the developer to build the interchange without any analysis of its effect on traffic, the court would conclude that the city is requiring the interchange because of the master plan, not to mitigate the traffic from the shopping center.
What does Koontz mean for communities?
The court made two key rulings in Koontz. First, the Nollan and Dolan tests apply to monetary exactions just like they apply to land dedications. Secondly, the Nollan/Dolan tests apply even when the permit is denied (and therefore there is no taking).
The court did not actually rule on the merits of the case. Koontz’s case will have to wend its way through a few more courtrooms before he can determine whether he deserves compensation from the Water Management District.
Since there is no longer any doubt that the Nollan/Dolan tests apply to monetary exactions, courts will have to consider whether there is a nexus between requiring Koontz to pay for offsetting his destruction of wetlands and the Water Management District’s goal of protecting wetlands. There also has to be proportionality. Koontz was proposing to destroy about 2.7 acres of wetland. How many acres of wetland restoration would his exaction have funded?
More importantly, what does this ruling mean for other planning agencies and property owners? Justice Samuel Alito says it prevents local governments from overstepping their bounds:
By conditioning a building permit on the owner’s deeding over a public right-of-way, for example, the government can pressure an owner into voluntarily giving up property for which the Fifth Amendment would otherwise require just compensation. So long as the building permit is more valuable than any just compensation the owner could hope to receive for the right-of-way, the owner is likely to accede to the government’s demand, no matter how unreasonable. Extortionate demands of this sort frustrate the Fifth Amendment right to just compensation, and the unconstitutional conditions doctrine prohibits them.
Some in the planning community believe the Koontz decision will hamstring planners. Reading the excerpt above, it looks like if a planning agency demands an exaction that might not meet the tests even in the opening round of a negotiation, the agency could be opening itself up to litigation.
Because monetary exactions have not always been viewed through the perspective of Nollan and Dolan, some jurisdictions may have regarded them as a way to negotiate for improvements. Under Koontz, courts may regard some attempts to bargain with developers as asking too much.
What can local governments ask for? Could growth management programs, like those that require developers to pay to help preserve agricultural land, be at risk? Will Virginia’s system of proffers, where developers offer dedications as part of the rezoning process, stand up to legal challenges?
The American Planning Association worries that this decision will make some agencies afraid to even propose exactions. The decision does not make it clear what kinds of exactions meet the Nollan and Dolan standard, or which payments might be grounds for takings lawsuits.
And what if permits are denied? Do local governments have to pay for exactions they never actually received? For takings that never occurred?
This decision does not do much to clear the waters. In fact, it has clouded them up significantly. Only time will tell whether this ruling opens local governments up to more litigation or whether it stops them from trying to regulate certain types of impacts altogether.