Exactions and Impact Fees

Abstract

There is a continuing debate after the Koontz v. St. Johns River Water Management Dist., 133 S.Ct. 2586 (2013) decision as to whether legislatively-enacted impact fees should be subject to Nollan/Dolan scrutiny or whether only adjudicative actions in the form of physical or monetary exactions will require this heightened scrutiny. Nollan/Dolan heightened scrutiny developed when the Court in Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987) held that the California Coastal Commission’s requirement that the Nollans dedicate a easement across their beachfront property in exchange for a permit to rebuild a new property did not have an “essential nexus” to the effects of the proposed land use. The Court in Dolan v. City of Tigard, 512 U.S. 374 (1994) refined this test to require that in addition to the exaction having an essential nexus, “that an adjudicative exaction requiring dedication of private property must also be “rough[ly] proportiona[l]” ... both in nature and extent to the impact of the proposed development.” In Koontz, the Court extended the use of Nollan/Dolan scrutiny to apply to monetary as well as physical exactions.

Practitioners and scholars anticipate that this issue will come before the U.S. Supreme Court once litigation presents the appropriate case for the Court to give guidance to state and federal courts. This article, as well as the author’s prior article, When Local Government Misbehaves, 2016 Utah L. Rev. 105, argues that courts should apply deferential scrutiny to legislative impact fees. Instead of subjecting such legislative fees to the Nollan/Dolan test, courts should apply applicable state standards, which range from a deferential rational basis test in California to a searching inquiry in North Carolina. As explained by the Court in Koontz, exactions pose a special concern because “land-use permit applicants are especially vulnerable to the type of coercion that the unconstitutional conditions doctrine prohibits because the government often has broad discretion to deny a permit that is worth far more than property it would like to take. . . . [and] [e]xtortionate demands of this sort frustrate the Fifth Amendment right to just compensation.” Therefore, courts should apply heightened scrutiny to exactions in order to “provide important protection against the misuse of the power of land-use regulation,” however state and local legislative actions should continue to receive judicial deference. Takings challenges to legislative action should remain subject to the per se takings tests under Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) (finding a taking “where government requires an owner to suffer a permanent physical invasion of her property”) and Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992) (finding a taking where regulations “completely deprive an owner of ‘all economically beneficial us[e]’ of her property”), or to the Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978) three-factor test (based on the “magnitude of a regulation's economic impact and the degree to which it interferes with legitimate property interests”), if it constitutes a partial taking. Until the Court speaks directly to the distinction between adjudicative exactions for individual development permitting and legislative impact fees designed to offset general development externalities, local governments, courts, litigators, and scholars will continue to struggle with whether the Nollan/Dolan test applies to municipal impact fees.

Keywords: exactions, monetary in-lieu exactions, Nollan/Dolan, Koontz, administrative versus legislative action, mandatory set-asides, impact fees, regulatory takings