United States: U.S. Supreme Court Rules Government Can Be Guilty of Taking When Denying a Land Use Permit or Requiring Monetary Payment as a Condition of Approval (September 2013)

Land developers will find it easier to challenge coercive exactions and unreasonable impact fees requested by governmental authorities during the land use permitting process in the aftermath of the U.S. Supreme Court's decision in Koontz v. St. Johns River Water Management District, 570 U.S. ____; 133 S.Ct. 2586 (2013).

The Court held that a demand for property from a land use permit applicant as a condition of approval can constitute an unlawful taking even when the government denies the land use permit. It does not matter that the governmental decision-maker might have been able to deny the application outright in the exercise of its discretion. The critical inquiry is whether the proposed condition of approval has a "nexus" and "rough proportionality" between the government's demand and the anticipated effects of the applied-for land use. If the project applicant rejects the proposed condition because it does not meet the "nexus" and "rough proportionality" tests, the project applicant can bring a lawsuit claiming the government's condition is tantamount to a taking of its property.

The Court also held that a local government's demand for money – for example, impact fees – must satisfy the "nexus" and "rough proportionality" tests. In so holding, the Supreme Court took its takings jurisprudence beyond physical or regulatory takings of private property. This portion of the Court's holding is extremely important because, as local governments find themselves with less money for capital improvements and operations, governmental decision-makers have been tempted to solve fiscal shortfalls with impact fees. The Koontz decision should limit the size of impact fees so that such payments are more closely related to the environmental impacts of development.

The facts of the case were straightforward. Koontz applied for permits to develop a portion of his property from the St. Johns River Water Management District. The District required permit applicants who desired to build on wetlands to offset any environmental damage that might be caused by the proposed development. Koontz offered to deed to the District a conservation easement on nearly three-quarters of his property as mitigation. The District refused Koontz's offer, stating that it would approve his requested land use permit only if Koontz (1) reduced the size of his development and, among other things, deeded to the District an even larger conservation easement area or (2) hired contractors to improve District-owned wetlands several miles away. Believing the mitigation required by the District for his proposed development was excessive, Koontz filed suit claiming the District's action was an unreasonable exercise of the District's police power constituting a taking without just compensation.

The trial court agreed with Koontz, finding the District's demands failed the requirements of Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994). In Nollan and Dolan, the Court established the rule that government cannot condition the approval of a land use permit on the owner's relinquishment of a portion of his or her property unless there is a nexus and rough proportionality between the government's demand and the effects of the proposed land use. The Florida District Court of Appeal affirmed. However, the Florida Supreme Court reversed on the basis that (1) the District denied the application and (2) a local government's demand for impact fees cannot give rise to a takings claim.

Justice Alito's opinion for the U.S. Supreme Court reasoned that the unconstitutional conditions doctrine prevents the government from coercing people to give up their constitutional rights. When the government makes extortionate demands in the land use context, the government violates the Fifth Amendment's Takings Clause "not because they take property but because they impermissibly burden the right not to have property taken without just compensation."

The Court's decision will have significant repercussions in permit negotiations and land use litigation at the federal, state and local level. Land developers will have an incentive to document conditions proposed by governmental agencies that may appear to be excessive mitigation in light of a project's development impacts. Government staff may be reluctant to offer proposed conditions or comment on a developer's offer of mitigation, fearing that staff are creating a record for future land use litigation. Staff will also have an incentive not to disclose proposed conditions until later in the application review and approval process, perhaps as late as immediately prior to submission to decision-makers in a staff report or other transmittal required pursuant to public meeting laws.

We will likely see an increased emphasis on collecting and analyzing data to properly characterize the potential impacts of a proposed development. Government staff will have an incentive to take their time and be cautious in the design of mitigation measures based on reasoned analysis and the best available science. As a result, project applicants can expect further delays in permit processing as impact studies and reports designing recommended mitigation measures are prepared prior to a formulation of the final conditions of approval. To protect themselves against Koontz litigation, government decision-makers will likely approve a variety of mitigation alternatives in the hope that at least one survives Nollan/Dolan scrutiny.

In California, the Koontz case raises the issue of the appropriate level of scrutiny that a court must use when evaluating the constitutionality of impact fees. In Ehrlich v. Culver City, 12 Cal.4th 854 (1996), the California Supreme Court used different tests to determine the constitutionality of project-specific impact fees as opposed to broadly applicable development impact fees.

A project-specific impact fee is one that is created and sought to be imposed specifically to address the environmental impacts of a particular development proposal. The Ehrlich court applied the Nollan/Dolan analysis to a recreation fee that Culver City sought to impose because the proposed development project was eliminating recreation opportunities in the area.

Broadly applicable development impact fees are enacted by a legislative body in anticipation of new development in a geographic area (sometimes over the entire jurisdiction or more often over a portion thereof) for the purpose of achieving a public policy objective. In Ehrlich, the California Supreme Court declined to apply the Nollan/Dolan test because Culver City's public art fee was broadly applicable to most new development projects in the City, like other development standards.

Because the Koontz majority opinion does not distinguish between these two types of impact fees, it is questionable that the California Supreme Court's application of a lesser level of scrutiny to certain types of impact fees in Ehrlich is still good law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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