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Supreme Court limits communities' control over their growth

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.


Photo by Uncle D on Flickr.

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.

Exactions

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.

Matt Johnson has lived in the Washington area since 2007. He has a Master's in Planning from the University of Maryland and a BS in Public Policy from Georgia Tech. He lives in Greenbelt. Hes a member of the American Institute of Certified Planners. He is a contract employee of the Montgomery County Planning Department. His views are his own and do not represent the opinion of his employer. 

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Corporations are people, my friend.

by Cavan on Jul 3, 2013 1:47 pm • linkreport

From this description of the case, I don't see the problem. Surely if you destroy x acres of wetland, and the local government requires you to restore x acres of wetland, that is proportional, and has an obvious "essential nexus".

by alurin on Jul 3, 2013 2:10 pm • linkreport

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.

The other perspective is that this ruling forces planners to do better planning. Planning via exactions isn't always the best way to create a good place; ensuring that the exactions we do use are rational and proportionate to their impact isn't a bad thing.

If other impacts are a concern, then perhaps regulating those impacts through the land development process isn't the best way to accomplish those goals.

If, for example, VA wants to add affordable housing and the proffer process is no longer a legal way of exacting that, then there are other ways to meet that policy goal (e.g. subsidize housing developments directly with tax revenue) that may actually be more efficient than attempting to do so through an exactions process.

In short, I don't think this changes the ability to regulate impacts of development, but it may very well change how those impacts are managed. This may force local authorities away from case-by-case negotiations with developers and toward the development of broadly applicable regulations instead.

by Alex B. on Jul 3, 2013 2:17 pm • linkreport

Virginia's system is a little unusual compared to other states, because proffers are technically "voluntary" offerings by the developer to achieve a result not automatically allowed by the base zoning.

It would be hard to win a suit over something you volunteered or didn't volunteer unless you could show that it truly wasn't voluntary. Of course it's not truly voluntary, but courts in Virginia are loathe to acknowledge it.

In Arlington, things are different. Arlington doesn't use proffers, but instead has a system set up whereby every significant development (other than low density residential or retail) has to have a "site plan" approved. The zoning for most urban sites is set with a base density plus a lot of wiggle room for additional density, but only if the site plan is approved.

The site plan includes (again) presumably voluntary offerings by the developer.

That being said, Arlington site plan approvals are set up to be inherently discretionary, so it would likely be really hard to show that one wasn't approved merely because of a lack of significant voluntary contributions.

(Arlington might have succeeded more generally, however, because the County is rarely sued by developers. It's such a valuable area to be, there's so much money to be made, and the county planners are generally (but not always) aware of economics, that it's usually just a "negotiation to Yes" when the developer is sophisticated.)

by Joey on Jul 3, 2013 2:21 pm • linkreport

"If, for example, VA wants to add affordable housing and the proffer process is no longer a legal way of exacting that, then there are other ways to meet that policy goal (e.g. subsidize housing developments directly with tax revenue) that may actually be more efficient than attempting to do so through an exactions process."

but the social contract in Arlington that has developed is that the pace of development and growth in demand overall (from which landowners benefit, quite strongly) is what is reducing the supply of market rate affordable housing (and by and large thats true, as long as it isnt extended to absurdities like limiting density IN ORDER to lower rents)- and that requiring developer funded guaranteed affordable housing is merely internalizing an externality (if you accept that the presence of a mix of incomes IS a positive externality). In the event that affordable housing had to be paid for from general revenues, I would suggest that would weaken the political support for accommodating the demand for new market rate housing.

In parts of alexandria (ike the beauregard corridor), it would kill it.

by AWalkerInTheCity on Jul 3, 2013 2:28 pm • linkreport

Can the author address something? Isn't the Koontz case a bit of an outlier. I thought that Koontz has a lot more of a right to claim takings of his land since it was purchased before any of the applicable wetland laws went into affect. There should be a lot more leeway for planners with more recently purchased property since the owner would have purchased in knowing that these wetland considerations are in effect (and thus would have paid a lower price or something).

by h_lina_k on Jul 3, 2013 2:33 pm • linkreport

This is an excellent summary of what is actually a pretty straightforward case that reached logical conclusions. I don't think this will actually muddy the waters.

On the monetary exaction front, it makes perfect sense that governments shouldn't be able to get around the unreasonableness of a demand to take your property through an equally unreasonable demand for money.

In the case at issue, it wasn't simply that the Florida Water District required that Koontz mitigate the destruction of wetlands with replacement wetlands. As Justice Alito explained in the decision, Koontz's property had about 3 acres that was separate from the rest of the property; it was high ground and its development really didn't remove or impact any wetlands. And he agreed to keep 10 acres of his property pristine as wetlands. Despite this, the Water District demanded that he either set aside an additional 2 acres or generally contribute to wetlands restoration projects THAT DIDN'T BEAR ANY RELATIONSHIP TO HIS PROPERTY. I'd be more sympathetic if they were nearby wetlands -- or at least "connected" in some meaningful way. But Alito noted the wetlands were "several miles away" and that the District's practice was just to generally require wetlands improvements -- not require them to alleviate specific impacts.

On the denial front, the conclusion was clear and even Kagan's (mostly well-reasoned) dissent agreed on this point. Localities shouldn't be able to get away with making unreasonable demands and then denying approval when you refuse to agree to them. In most cases, the landowner would just give in and that is Alito's point.

There's a theoretical grey area, but anyone who does this in practice knows it will be relatively easy to know when the line is crossed. DDOT and OP can continue to throw out crazy ideas -- it will only be an issue when the Zoning Commission or BZA actually has to rule, or when a permit is about to be issued.

by Dave on Jul 3, 2013 2:39 pm • linkreport

@h_lina_k:
The Court did not rule on the merits. We don't know if Koontz is entitled to anything yet.

All the Court ruled was that Nollan and Dolan apply to monetary exactions and that they apply even when the permit is denied (and therefore no taking occurs).

On the merits, the case was remanded. It will be several years before we know the outcome.

At any rate, in Palazzolo v. Rhode Island (2001), SCOTUS ruled that a landowner does not waive his rights by purchasing land after a regulation has been enacted.

Property owners (with respect to regulatory takings) have the same rights to compensation whether they owned the land before the regulation was enacted or if they purchased it later.

by Matt Johnson on Jul 3, 2013 2:40 pm • linkreport

OK, this is a wonky article even by GGW standards. I'm hesitant to say anything, but I don't understand why Koontz could just assume that he was entitled to develop the 3.7 acres of his land. Yes if the land is zoned for whatever purpose he had in mind, but otherwise, he is not entitled to anything. He was offered a deal to get something that he was not entitled to, turned it down, and then sued saying that the deal was unlawful. Even accepting that the terms of the deal were unlawful, it still doesn't mean that he can just do whatever he wants with his land...unless you consider all zoning a 'taking'?

by renegade09 on Jul 3, 2013 3:37 pm • linkreport

This sounds on its face like a great ruling. The government should not be in the business of extorting from people attempting to make use of their own property. If the governments are forced to face sanctions for making unreasonable demands - even in the first round of negotiations - then the hands of a bully are tied.

by BenK on Jul 3, 2013 5:29 pm • linkreport

FWIW, the Arlington process is more like the PUD process in DC, just better structured and called something different. It's not in any way unique otherwise.

In either case, the developer gets more FAR than would normally be the case through the underlying zoning. In return for that increase in development capacity, they provide benefits/proffers. I don't see this particular case (and thank you Matt for bringing it to our attention) as having much impact on the process in either DC or Arlington or probably Virginia more generally. It's not voluntary at all, it's quid pro quo.

In DC, I argue that the process could be significantly toughened up to get better benefits and more economic value for the public. I argue that the reason that the process is under-defined is to reduce costs for developers. It's tricky too because of the general simpatico relationships between elected officials and developers (a/k/a "Growth Machine).

http://www.dallasnews.com/opinion/editorials/20130623-editorial-new-south-dallas-housing-formula.ece

OTOH, DC's height limit restricts how much additional density can be obtained and therefore puts a ceiling on the economic value of the increased density.

by Richard Layman on Jul 3, 2013 5:49 pm • linkreport

@Richard,

By Virginia law, it has to be "voluntary".

Most everyone recognizes that there's an exaction involved, but successful proffer acceptances all have documentation attested to by the owner/developer that it's been "voluntarily" proffered. Because of this, it's often hard for the owner/developer to win a Virginia court case where he's asserted anything to the contrary. For unsuccessful ones, it's really hard to show an equal protection failure, as localities are offered a tremendous amount of discretion in parcel-by-parcel land planning under Virginia case law.

That being said, I don't think the Koontz case will have much impact on day-to-day business in Virginia. We'll see.

by Joey on Jul 3, 2013 6:34 pm • linkreport

Well this would kill the hell out of DC's system.

by Tom Coumaris on Jul 3, 2013 8:01 pm • linkreport

They volunteer to give stuff in return for more density. I don't see how it's any different from a PUD.

Tom C: I don't see how this case will have any impact on the DC system. Please advise.

What is interesting is that I haven't ever read these cases. (I will now.) What many people think that developers should do as a matter of course, "give community benefits", isn't supported by the law.

In DC, benefits are triggered only with PUDs and city-owned land disposition agreements, and a 20% density bonus for affordable housing. I don't think that with variances and zoning changes (AND ALLEY CLOSINGS, which should trigger benefits) that proffers are triggered.

They can come from tax benefit projects too, indirectly. Usually the argument is that there is public benefit from the project, thereby deserving tax reduction.

by Richard Layman on Jul 3, 2013 8:40 pm • linkreport

@renegate: You have asked the fundamental question of exactions takings cases. Indeed the permit could be denied outright, and then there is no taking. Or the government could simply demand the money, and that is obviously a taking. So is the permit just compensation for the money?

In general, no. Permits are not just compensation even though they may well be more valuable than what is taken.

Exactions are a hybrid between a regulation and a plain old physical taking. So the rules are a bit of a compromise. The goverment can demand a toll of sorts, but only to mitigate problems that the development causes.

Basically, the Supreme Court is concerned with extortion by local governments, in which some people have to pay a toll to get a permit while others do not, simply based on who has something the government wants. If every development must provide the same amount of money, it is a tax and that is legal.

So the courts try to look at what the agencies are really trying to do. There will be gray areas, but in general, if you want development to be a cash cow, enact a tax. If you just want developers to pay their own way, the permit writers can keep doing that as long as they do some sort of analysis to make sure that this is all they are doing.

by JimT on Jul 3, 2013 11:21 pm • linkreport

@Richard Layman and Tom C

Exactions law (though possibly not this case) would potentially raise questions about some of the toll charges that are placed on developments to satisfy NIMBY concerns. I can see a case waiting in the wings, where the local government says: The development made the neighbors mad as well, and this exaction was necessary to placate them. The clear nexus was placating the neighbors and we requied the minimum necessary to placate them.

by JimT on Jul 3, 2013 11:25 pm • linkreport

PUDs and similar processes touch on one of the immediate "grey" areas of the ruling. I agree that I think the PUD process survives without much controversy -- in most cases the benefits are reasonable given the development incentives requested and the contributions are voluntarily offered. The Zoning Commission goes out of its way to avoid "requiring" any benefits -- they just evaluate based on the package that is before them.

Also, with a PUD process, you're getting something extra. It is not like Koontz, who was simply trying to get a permit to do something basic with his land and is getting held up at gunpoint.

That said, I have seen first hand how OP, DDOT and other agencies try to use the PUD process to extract things for which there is no real basis. They will just sit on their hands and refuse to issue their reports that are required to move the process along until and unless you agree to their demands -- even when the law says you are explicitly NOT required to do what they demand and/or there is no factual basis for the request. (Richard -- the machine, if it exists, does not function well every time.)

Ultimately I think Koontz will have a limited impact on the discretionary approval process in DC. In most cases, the Commission and the BZA know what they are doing. Where Koontz will be far more relevant is in battling the excesses of agencies like DDOT and DDOE who often try to extract major concessions through their permit approval authority.

by Dave on Jul 4, 2013 8:35 am • linkreport

Dave -- thanks.

by Richard Layman on Jul 4, 2013 10:38 am • linkreport

@JimT
Thanks- that helps. I tend to agree with the APA that this will have a chilling effect on planning discussions.

by renegade09 on Jul 4, 2013 12:08 pm • linkreport

What about the "voluntary" agreements between property owners and the ANCs? Course these are far down the food chain, but still...

by goldfish on Jul 5, 2013 8:01 am • linkreport

Yes, thanks Dave. I assumed the PUD process was so close to extraction that it would fail review. Maybe it's a gray area.

by Tom Coumaris on Jul 5, 2013 11:04 am • linkreport

Interesting decision, Matt. Since the case is being remanded back to the lower court for further consideration, I would agree that conclusions are premature at this point.

While there is a cosmetic similarity with the Florida case and PUDs, there are fundamental differences.

Under the DC regs, once PUDs are "set down" by the Zoning Commission, there is an automatic assumption of negative impact from excess development over M-O-R that can purportedly be mitigated (with public benefits) and they are scheduled for public hearings as contested cases.

And while a ZC decision can be appealed, the DC Appeals Court is loathe to overturn an administrative decision so the public is at a big disadvantage if there is a disagreement with the commission.

In my experience, there is far too much coziness between the developers, the ZC and DC elected and appointed officials, especially where public property is involved.

by Anonymous, Too on Jul 5, 2013 11:30 pm • linkreport

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