Takings and Mitigation (2016)

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3TAKINGS AND MITIGATION By Timothy R. Wyatt, Conner Gwyn Schenck PLLC, Greensboro, North Carolina I. INTRODUCTION When land developers approach a state transporta- tion agency for permission to build access to a state highway, the state transportation agency may attempt to mitigate the development’s impact to the highway system by exacting concessions from the developers. For example, state transportation agencies often require the donation of a portion of the developer’s real property for an acceleration or deceleration lane near the entrance of the development, highway wid- ening to support additional traffic generated by the development, or other improvements. Likewise, other permitting agencies, such as local governments and environmental and natural resource agencies, may be charged with exacting other concessions to mitigate the development’s impact to the environment. For example, the U.S. Army Corps of Engineers (Corps) will often require a developer to create new wetlands on the property as a condition for granting the devel- oper a permit to fill existing wetlands to support the proposed development. Increasingly, permitting agencies, including state transportation agencies, attempt to exact off-site improvements (e.g., require the developer to fund or construct improvements to the state highway sys- tem) rather than on-site exactions such as dedica- tions of a portion of the developer’s real property. In 2013, in Koontz v. St. Johns River Water Manage- ment District,1 the U.S. Supreme Court held that heightened judicial scrutiny (known as the “essen- tial nexus” test) applies in cases of off-site exactions. The essential nexus test, articulated in the Court’s earlier Nollan2 and Dolan3 opinions, was previously understood to apply to on-site exactions. The test requires the permit condition to have a close rela- tionship or “nexus” to a legitimate governmental interest involving the proposed development, and for the burden on the developer to be roughly pro- portional to the anticipated adverse impact of the development on the public. A permit condition that fails to satisfy the essential nexus test is an uncon- stitutional taking. Understanding the point at which an exaction becomes an unconstitutional taking is increasingly important for state transportation agencies. There is a growing perception that traditional government fund- ing mechanisms will not satisfy highway funding requirements, and that alternative funding mecha- nisms must be pursued—including requiring devel- opers to pay for the impacts of their developments: A federal commission has fixed the cost of maintaining and upgrading surface transportation at $225 billion a year for the next 50 years. …The severe infrastructure deficiency problem has forced state and local governments to examine and experiment with alternate ways to fund infrastructural needs. The primary mechanisms governments have used to assist in the funding and provision of public facilities gener- ated by growth have been development land dedications, monetary exactions, impact fees, special assessments and homeowner dues.4 The purpose of this digest is to provide updated legal research regarding the legal standard for exac- tions, including the impact of the 2013 Koontz deci- sion on the ability of state transportation agencies and other permitting agencies to advance public policy goals (e.g., traffic flow management, public safety, and environmental mitigation) in the land- use permitting and project development processes. The digest is also intended to clarify for state trans- portation agencies and other permitting agencies, to the extent possible, the point at which such exac- tions become unconstitutional takings. This digest examines the application of the essential nexus test to both on-site and off-site exactions to address impacts to the highway system and other environ- mental impacts. As part of this study, the survey form included as Appendix A was sent to all 50 state transportation agencies. Responses were received from 27 state transportation agencies, for a 54 percent response rate. Survey responses are discussed throughout this digest. The digest concludes that the Koontz decision will have a minimal impact on the current practices of 4 DaviD L. CaLLies, RobeRt H. FReiLiCH & tHomas e. RobeRts, Cases anD mateRiaLs on LanD Use, at 234–35 (5th ed. 2008) (hereinafter referred to as “CaLLies”). 1 133 S. Ct. 2586, 186 L. Ed. 2d 697 (2013). 2 Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 107 S. Ct. 3141, 97 L. Ed. 2d 677 (1987). 3 Dolan v. City of Tigard, 512 U.S. 374, 114 S. Ct. 2309, 129 L. Ed. 2d 304 (1994).

4most state transportation agencies, which already tend to apply reliable engineering methods to deter- mine the impact of a development to the state high- way system, allowing state transportation agencies to prescribe exactions (e.g., developer-funded improvements to the state highway system) that are tailored to mitigate the development’s traffic impacts. Even if state transportation agencies tran- sition to expanded use of impact fees and alterna- tive transportation solutions, similar methods can be applied to quantify the impact of the development and determine the proportional share of the cost of a broad-based transportation solution that should be borne by the developer. The Koontz decision is expected to have a more significant impact on environmental agencies and local land-use authorities, most of whom are accus- tomed to judicial deference when imposing environ- mental mitigation conditions, particularly when the mitigation does not involve the dedication of a por- tion of the developer’s real property to public pur- poses. The Koontz decision clarified that the height- ened judicial scrutiny of the essential nexus test applies to both on-site and off-site exactions, includ- ing monetary exactions such as impact fees. Local governments and environmental agencies will need to follow the lead of state transportation agencies in tailoring mitigation solutions to be roughly propor- tional to the actual impact of the development. A. Background It has long been recognized that exactions in the development permitting context can pose legal and constitutional dilemmas. In 1986, prior to the U.S. Supreme Court’s formulation of the essential nexus test, a National Cooperative Highway Research Program (NCHRP) Legal Research Digest stated: “Exactions, or the compulsory dedication of private property for a public use without payment of com- pensation, strain at the boundaries and test the limits of the police power concept. They walk the thin dividing line between police power regulation and compensable taking of property.”5 The 1986 NCHRP exactions digest noted that the tests used by various state courts to evaluate the constitutionality of exactions were “lacking in stan- dards that are precise, easy to apply, and productive of uniform results. The tests in fact are contradic- tory.”6 The digest described two tests in prominent use, under which government exactions were scruti- nized according to significantly different standards. First, the “specific and uniquely attributable” test used by some state courts required a “firm link” or “direct relationship” between the public burden imposed by the development and the public use for which a dedication of some portion of the developer’s property was to be exacted.7 Second, the “rational nexus” test used by other states required the gov- ernment permitting agency only to “establish a rea- sonable basis for finding that the need for the acqui- sition [of some portion of the developer’s property] was occasioned by the activity of the” developer.8 The “rational nexus” test was seen as a reaction to and rejection of the “specific and uniquely attrib- utable” test, which some state courts viewed as “impos[ing] an unjustifiably heavy burden of proof on the municipality or local planning authority seeking to uphold the validity of a challenged exac- tion.”9 It is this controversy over the level of scrutiny to be applied to government exactions into which the U.S. Supreme Court ventured with its Nollan decision in 1987. 1. Nollan v. California Coastal Commission The plaintiffs in Nollan were owners of a beach- front lot who sought to replace the existing 521-sq-ft rental property on the lot with a new 1,674-sq-ft residence.10 In order to do so, they needed a coastal development permit from the California Coastal Commission.11 The commission granted the permit on the condition that the plaintiffs grant a public easement across the lot, bordering the shoreline, to allow the public to traverse between the public beaches on either side of the property.12 The California Court of Appeal upheld the condition, finding that the state legislature’s enactment of the California Coastal Act required such a lateral access condition for any new construction that would be 10 percent larger than the structure it replaced.13 The U.S. Supreme Court disagreed in a 5–4 ruling and overturned the condition, holding that the com- mission lacked an “essential nexus” between its pur- pose for conditioning permit approval on a lateral 7 Id. at 7. 8 Id. at 8 (quoting Jordan v. Vill. of Menomonee Falls, 137 N.W.2d 442, 447 (Wis. 1966)). 9 Id. 10 Nollan v. Cal. Coastal Comm’n, 177 Cal. App. 3d 719, 721, 223 Cal. Rptr. 28, 29 (Cal. Ct. App. 1986), rev’d, 483 U.S. 825 (1987). 11 Id. 12 Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 829, 107 S. Ct. 3141, 3144, 97 L. Ed. 2d 677, 684 (1987). 13 Nollan, 223 Cal. Rptr. at 31. 5 JoHn C. vanCe, exaCtion oF RigHt-oF-Way by exeRCise oF PoLiCe PoWeR 3 (Research Results Digest No. 149, Na- tional Cooperative Highway Research Program, Trans- portation Research Board of the National Academies of Science, Engineering, and Medicine, 1986). 6 Id.

5easement across the property and its purpose for denying a permit in the absence of the easement.14 Writing for the majority, Justice Scalia said that the nexus requirement was not satisfied because “the condition substituted for the prohibition utterly fails to further the end advanced as the justification for the prohibition.”15 The commission’s supposed con- cern about the new residence was that it would obstruct access to the coast, but the easement exacted from the plaintiffs would not improve access to the coast but rather would improve access between public beaches for people already at the coast.16 The Court articulated the nexus requirement as follows: “[U]nless the permit condition serves the same gov- ernmental purpose as the development ban, the building restriction is not a valid regulation of land use but ‘an out-and-out plan of extortion.’”17 The dissent, led by Justice Brennan, argued that the easement condition should have been upheld under the deferential scrutiny of the “rational nexus” test used in many jurisdictions, because the purpose of the easement (i.e., to increase lateral access along the coast) was reasonably related to the impact of the proposed development (i.e., a decrease in access to the coast).18 The dissent argued that the majority employed heightened scrutiny (akin to the “specific and uniquely attributable” test used in some juris- dictions) by demanding “a precise match between the condition imposed and the specific type of bur- den on access created by appellants,” thus setting “an unreasonably demanding standard for deter- mining the rationality of state regulation.”19 The majority, however, argued that the commission’s permit condition failed to satisfy even the deferen- tial scrutiny of the “rational nexus” test—that the permit condition “does not meet even the most untailored standards” because of the complete lack of fit between the burden of new development (decreased access to the coast) and the condition imposed on new development (increased access along the coast).20 The majority indicated, however, that it considered heightened scrutiny appropriate when real property is exacted as a condition for a development permit: “We are inclined to be particu- larly careful…where the actual conveyance of prop- erty is made a condition to the lifting of a land-use restriction, since in that context there is heightened risk that the purpose is avoidance of the compensa- tion requirement, rather than the stated police- power objective.”21 The Court expressed particular concern that the lateral easement for the public con- stituted a “permanent physical invasion” of the plaintiffs’ property, justifying heightened scrutiny.22 2. Dolan v. City of Tigard Seven years later, the Dolan case gave the U.S. Supreme Court an opportunity to clarify and expand upon the “essential nexus” test announced in Nollan. The plaintiff in Dolan was the owner of a plumbing and electric supply store who sought to replace an existing 9,700-sq-ft store and gravel parking lot with a new 17,600-sq-ft store and paved parking lot and ultimately an additional structure on the lot to house complementary businesses.23 A creek that was subject to flooding traversed one corner of the lot.24 Because the proposed new devel- opment was adjacent to the floodplain, the plain- tiff ’s permit application triggered standards in the city’s development code, which required the dedica- tion of land within and adjoining the floodplain for a public “greenway,” to include a pedestrian and bicycle pathway.25 The City, applying its develop- ment code standards, conditioned the building permit on the dedication of all land within the floodplain for drainage improvements and an addi- tional 15-ft strip adjacent to the floodplain for the pedestrian and bicycle pathway, with the total 14 Nollan, 483 U.S. at 837 (“[T]he lack of nexus between the condition and the original purpose of the building restriction converts that purpose to something other than what it was. The purpose then becomes, quite simply, the obtaining of an easement to serve some valid governmen- tal purpose, but without payment of compensation.”). 15 Id. 16 Id. at 838. 17 Id. at 837 (quoting J.E.D. Assocs., Inc. v. Atkinson, 432 A.2d 12, 14–15 (N.H. 1981)). 18 Id. at 861 (Brennan, J., dissenting). See also id. at 865 (Blackmun, J., dissenting) (“The close nexus between ben- efits and burdens that the Court now imposes on permit conditions creates an anomaly in the ordinary requirement that a State’s exercise of its police power need be no more than rationally based.”). 19 Id. at 848–49 (Brennan, J., dissenting). 20 Id. at 838. The majority did not acknowledge the sig- nificant jurisdictional split regarding the level of scrutiny to be applied to exactions, stating that its essential nexus test was “consistent with the approach taken by every other court that has considered the question, with the exception of the California state courts.” Id. at 839 (citing cases that employed the “rational nexus” test as well as cases that employed the “specific and uniquely attribut- able” test). 21 Id. at 841. 22 Id. at 831–32. The majority specifically rejected the dissent’s argument that a public easement across the prop- erty is “a mere restriction on its use,” in which case the con- dition might be subject to the lesser scrutiny of a regulatory taking. Id. at 831, 848 n.3 (Brennan, J., dissenting). 23 Dolan v. City of Tigard, 512 U.S. 374, 379, 114 S. Ct. 2309, 2313, 129 L. Ed. 2d 304, 312–13 (1994). 24 Id. 25 Id. at 379–80.

6dedication comprising 10 percent of the lot area.26 The plaintiff requested a variance from this requirement, which was denied by the City.27 In another 5–4 ruling, however, the Court over- turned the conditions. The Court distinguished this case from Nollan, specifically finding that “the reduction of traffic congestion” and “the prevention of flooding” are legitimate governmental interests, and that (unlike in Nollan) there was a nexus between those governmental purposes and the per- mit conditions.28 The Court determined, however, that the City failed to show that “the degree of exac- tions demanded” by the City were appropriately tai- lored to the anticipated impact of the development.29 As in Nollan, what triggered the Court’s heightened scrutiny appeared to be the permanent physical occupation of the plaintiff ’s real property, requiring the plaintiff to surrender her right to exclude others from the portion of her property within and around the floodplain.30 With respect to the floodplain dedi- cation, it appeared that the Court might have accepted a development ban for the portion of the lot within the floodplain, but the Court suggested that requiring the plaintiff to also dedicate the floodplain to the public was disproportionate to the purpose of flood control.31 With respect to the pedestrian and bicycle pathway, the Court overturned that require- ment because the City had not demonstrated that it was tailored to offset the additional traffic demand that the expanded store was expected to generate.32 In announcing this “rough proportionality” requirement,33 the Court acknowledged the height- ened scrutiny of its essential nexus test and acknowl- edged a split among state courts as to the level of scrutiny to be applied to exactions. The Court pur- ported to reject the strict “specific and uniquely attributable” test used by some jurisdictions as too “exacting,” and also rejected the “lax” standard used by other jurisdictions, which accepted “very general- ized statements as to the necessary connection between the required dedication and the proposed development.”34 The Court instead purported to adopt the “rational nexus” (or “reasonable relation- ship”) test used by jurisdictions that require the gov- ernment permitting authority to show a “reasonable relationship or nexus” between the required dedica- tion and the impact of the proposed development, which the Court viewed as “intermediate” scrutiny.35 The Court, however, rejected the “rational nexus” and “reasonable relationship” names adopted by some jurisdictions to describe this intermediate scru- tiny test, to avoid any confusion among lower courts that “rational basis” or deferential scrutiny applies to exactions.36 The government permitting agency’s conditions are to be scrutinized to verify that the government made “some sort of individualized deter- mination” in support of its finding that the imposed condition or exacted dedication is “related both in nature and extent” (i.e., roughly proportional) to the anticipated impact of the development.37 With the pedestrian and bicycle pathway exaction, for exam- ple, the City needed to “make some effort to quantify its findings” that the pathway would actually offset the additional traffic demand generated by the expanded store.38 The Court did not specifically con- clude that the exactions demanded by the City were disproportionate to the impact of the development, just that the City failed to satisfy its burden of prov- ing rough proportionality.39 As a result of Nollan and Dolan, it was estab- lished that when the government imposes an exac- tion on a developer as a condition of granting a development permit, the government bears the bur- den to show that: 1. There is a nexus between the anticipated impact of the development and a legitimate governmental interest (i.e., that the specific burden imposed on the public by the devel- opment is offset by a legitimate benefit conferred on the public by the exaction). 2. The exaction is roughly proportional to the anticipated impact of the development (i.e., that the government has quantified the anticipated impact of the development and limited its exaction accordingly). 26 Id. at 380. 27 Id. at 380–81. 28 Id. at 387. 29 Id. at 388, 395–96. 30 Id. at 393. 31 Id. (“The city has never said why a public greenway, as opposed to a private one, was required in the interest of flood control.”). 32 Id. at 395–96 (“No precise mathematical calculation is required, but the city must make some effort to quantify its findings in support of the dedication for the pedestrian/ bicycle pathway beyond the conclusory statement that it could offset some of the traffic demand generated.”). 33 Id. at 391. 34 Id. at 389–90. 35 Id. at 390 (citing Simpson v. North Platte, 292 N.W.2d 297, 301 (Neb. 1980)). 36 Id. at 391 (“[T]he term ‘reasonable relationship’ seems confusingly similar to the term ‘rational basis’ which describes the minimal level of scrutiny under the Equal Protection Clause of the Fourteenth Amendment. We think a term such as ‘rough proportionality’ best encapsulates what we hold to be the requirement of the Fifth Amendment.”). 37 Id. 38 Id. at 395–96. 39 Id.

7This two-element test, and the heightened scru- tiny (i.e., burden on the government) with which it is to be applied,40 is referenced herein as the “essential nexus” test. 3. Koontz v. St. Johns River Water Management District Although the Nollan and Dolan decisions estab- lished that exactions are to be viewed with height- ened judicial scrutiny, a number of state courts over the subsequent years declined to apply the essential nexus test to all exactions, distinguishing cases from Nollan and Dolan and in the process carving out sig- nificant exceptions.41 Notably, relying on other U.S. Supreme Court opinions in which the Court applied the more deferential test for regulatory takings in cases where development permits were outright denied under any circumstances rather than condi- tionally approved,42 some lower courts concluded that the essential nexus test was inapplicable when development permits are denied because the developer rejects the conditions exacted by the per- mitting authority.43 Likewise, noting the Court’s concern in Nollan and Dolan about government occupation or physical invasion of the developer’s real property, a number of lower courts concluded that the essential nexus test did not apply to exac- tions of money or other personal property,44 or even to on-site environmental mitigation conditions that did not involve a public easement.45 Finally, conclud- ing that Nollan and Dolan involved case-specific, ad hoc, “adjudicative” decisions by permitting agencies, a number of courts concluded that the essential nexus test did not apply to generally applicable “leg- islative” exactions that do not involve the exercise of permitting agency discretion.46 By distinguishing cases from the facts of Nollan and Dolan, and fitting cases into one of the categories of judicial “excep- tions,” courts could avoid applying the essential nexus test “to many, if not most, of the exactions commonly imposed by government.”47 With the Koontz case in 2013, the Court elimi- nated a number of the exceptions in yet another 5–4 decision. The Koontz petitioner sought to develop 3.7 acres of a 14.9-acre tract that was primarily com- prised of wetlands.48 To mitigate the environmental impact of the proposal, the developer proposed to construct a retention pond to handle stormwater from the development and to deed a conservation easement to the local water management district over the remaining undeveloped 11 acres.49 The dis- trict rejected the proposal, denying the developer a permit to fill the 3.7 acres necessary for the develop- ment.50 The district then proposed two alternatives under which it would grant a permit: 1) to reduce the size of the development to 1 acre and deed a 40 Id. at 398 (Stevens, J., dissenting): In addition to showing a rational nexus to a public purpose that would justify an outright denial of the permit, the city must also demonstrate “rough propor- tionality” between the harm caused by the new land use and the benefit obtained by the condition. The Court also decides for the first time that the city has the burden of establishing the constitutionality of its conditions by making an “individualized determina- tion” that the condition in question satisfies the pro- portionality requirement (internal citation omitted). 41 Lynda L. Butler, The Resilience of Property, 55 aRiz. L. Rev. 847, 888 (2013) (“Judicial resistance to the rules- based approach of Nollan and Dolan has been widespread among lower courts…. This resistance may be due to the difficulty of applying any single or formulistic vision of constitutional property to the complex and variable situ- ations involving ordinary property. Clear rules generally do not work well when a lot of variety exists” (internal citation omitted)); J. David Breemer, The Evolution of the “Essential Nexus”: How State and Federal Courts Have Applied Nollan and Dolan and Where They Should Go from Here, 59 WasH. & Lee L. Rev. 373, 375 (2002): [M]any [courts] have discovered exceptions to the essential nexus rule that preclude its application to many, if not most, of the exactions commonly imposed by government. In particular, there is great confusion over the applicability of the essential nexus to exactions that amount to a demand for money and to exactions that originate from a legislative act. Many courts have con- cluded that both types of land use conditions fall outside the scope of Nollan and Dolan (internal citation omitted). 42 City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 703, 119 S. Ct. 1624, 1635, 143 L. Ed. 2d 882, 901 (1999) (The essential nexus test “was not designed to address, and is not readily applicable to, the much different questions arising where, as here, the land- owner’s challenge is based not on excessive exactions but on denial of development.”). 43 See generally Richard J. Ansson, Jr., Dolan v. Tigard’s Rough Proportionality Standard: Why This Standard Should Not Be Applied to an Inverse Condem- nation Claim Based upon Regulatory Denial, 10 seton HaLL Const. L.J. 417 (2000). 44 See Breemer, supra note 41, at 387 nn.87–89 and accompanying text. 45 See, e.g., Henry v. Jefferson County Planning Comm’n, 148 F. Supp. 2d 698, 708–09 n.142 (N.D. W. Va. 2001) (con- cluding that the essential nexus test was inapplicable to conditions to ensure “environmentally sound” develop- ment where the conditions did not require portions of the land to be dedicated to public use), rev’d on other grounds, 34 F. App’x 92 (4th Cir. 2002), cert. denied, 538 U.S. 944 (2003). 46 See, e.g., Ehrlich v. City of Culver City, 911 P.2d 429, 458 (Cal. 1996), cert. denied, 519 U.S. 929 (1996). 47 Breemer, supra note 41, at 375. 48 Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2591–92, 186 L. Ed. 2d 697, 703–05 (2013). 49 Id. at 2592–93. 50 Id. at 2593.

8conservation easement over the remaining approxi- mately 14 acres, or 2) to supplement the developer’s original proposal to develop 3.7 acres with an agree- ment for the developer to fund improvements to approximately 50 acres of existing wetlands owned by the district and located several miles away from the developer’s parcel.51 First, the Court concluded that the fact that the permit was denied did not entitle the district’s actions to the more deferential scrutiny of a regula- tory takings claim. Because the district was willing to approve the permit under certain conditions, those proposed conditions were subject to review under the essential nexus test.52 Second, the Court held that the essential nexus test applied to both alternatives proposed by the district—its first option, which con- sisted entirely of a traditional on-site easement exac- tion, as well as its second option, which involved a requirement to construct or fund off-site improve- ments to government property.53 In so holding, the Court concluded that monetary exactions or other off-site exactions “are functionally equivalent to other types of land use exactions,” when such exac- tions are directly linked to the developer’s interest in “a specific parcel of real property.”54 As in Dolan, the Koontz Court did not conclude that the district’s proposed conditions failed to satisfy the rough pro- portionality requirement of the essential nexus test—the Court merely remanded the case for fur- ther proceedings (e.g., for the district to attempt to satisfy its burden of proving rough proportionality to a lower court employing heightened scrutiny).55 The Koontz decision settled a number of issues left unsettled after Nollan and Dolan, notably that the essential nexus test applies to monetary and other off-site exactions just as it applies to tradi- tional on-site dedication requirements. Some issues, however, were not expressly settled by Koontz. The Koontz decision does not specifically address the dis- tinction made by some state courts that the essen- tial nexus test applies to only adjudicative decisions, not legislative exactions.56 In addition, the Court has not provided substantive guidance or examples as to what degree of quantification (of the public burden anticipated from the development or of the public benefit conferred by the mitigation condition) would satisfy the rough proportionality requirement. The Court has limited its guidance on that issue to con- firming that “permitting authorities [are allowed] to insist that applicants bear the full costs of their pro- posals,”57 but the government cannot exact more from the developer than would be roughly propor- tional to the impact of the development. The remain- der of this digest examines the status of exactions by state transportation agencies and other permitting agencies in the wake of Koontz. B. Applicability of Essential Nexus Analysis The U.S. Supreme Court has made it clear that the essential nexus test applies whenever conces- sions are exacted from a developer as a condition of a permitting agency granting a development permit, at least when the exaction is imposed as an exercise of discretion by the permitting agency. As a result of Koontz, it is clear that the essential nexus test cov- ers a broader range of government exactions than was previously understood in many jurisdictions. To better understand when the essential nexus test applies, it is helpful first to look at the range of cases where it does not apply. 1. When the Essential Nexus Test Does Not Apply a. Regulatory Takings Claims.—Mere restrictions on the use of real property, not imposed as a condi- tion of approving a development permit, are evalu- ated under the more deferential test announced by the Court in Penn Central Transportation Co. v. Mahon,58 under which land-use restrictions are typi- cally upheld if they “are substantially related to the promotion of” a legitimate governmental interest and permit “reasonable beneficial use” of the prop- erty.59 The Penn Central Court identified a number of factors to consider in making this “ad hoc, factual inquir[y],” including the economic impact of the restriction on the landowner, and whether the regu- lation is imposed through “some public program adjusting the benefits and burdens of economic life to promote the common good.”60 Although this con- cern with balancing benefits and burdens, on its face, appears similar to the nexus and rough propor- tionality requirements of the essential nexus test, the focus on whether the regulations permit “rea- sonable beneficial use” of the property is akin to 57 Id. at 2595. 58 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978). 59 Id. at 138. 60 Id. at 124. 51 Id. 52 Id. at 2596 (“Even if respondent would have been entirely within its rights in denying the permit for some other reason, that greater authority does not imply a lesser power to condition permit approval on petitioner’s forfeit of his constitutional rights.”). 53 Id. at 2598. 54 Id. at 2599–600. 55 Id. at 2603. 56 Id. at 2608 (Kagan, J., dissenting) (“The majority might, for example, approve the rule, adopted in several states, that Nollan and Dolan apply only to permitting fees that are imposed ad hoc, and not to fees that are gen- erally applicable.”).

9low-level “rational basis” scrutiny, which is far more deferential to agency decisions than the essential nexus test.61 Under this more deferential test, land- use restrictions are typically upheld unless they serve to deny the landowner all “economically viable use of his land.”62 The Penn Central test for regulatory takings applies to land-use restrictions such as zoning ordi- nances,63 and thus applies to cases in which develop- ment permits are denied because the proposed devel- opment is not a permitted use under the existing regulatory scheme.64 The Court’s application of the Penn Central test to cases of outright permit denials has led to a great deal of the confusion and contradic- tory opinions seen in exactions cases at the lower courts, in which courts have analyzed attempted exactions in permit denial cases according to the more deferential test for regulatory takings rather than the essential nexus test. Koontz, however, makes clear that where the permit is not denied outright, but rather denied because the developer refused to accept the condition proposed by the permitting agency, the stricter essential nexus test applies.65 b. Eminent Domain.—Where there is a “perma- nent physical invasion” of private property by the government,66 abrogating the landowner’s right to exclude others from the real property, a categorical taking has occurred and the essential nexus test does not apply. The state transportation agency or local government must always pay just compensa- tion for the real property taken in that situation.67 In the eminent domain context, however, courts are very deferential to the government with respect to whether the taking of the landowner’s property substantially advances a legitimate governmental interest or public purpose,68 as opposed to the height- ened scrutiny of the essential nexus test, which is applied when that same property is “exacted” in exchange for development permits. The difference, of course, is whether the government acknowledges an obligation to pay just compensation for the prop- erty exacted. If it does not (instead treating the exacted property as mitigation in exchange for the developer’s adverse impacts), then the heightened scrutiny of the essential nexus test applies.69 c. Environmental Mitigation of Government Con- struction Projects.—Government actions, such as highway construction projects by state transporta- tion agencies, are often subject to requirements to mitigate the adverse environmental impact of the project.70 Often, such requirements in state and federal law require the government actor to pro- vide environmental mitigation that exceeds the adverse impact of the project.71 If such mitigation 61 Stewart E. Sterk, The Federalist Dimension of Reg- ulatory Takings Jurisprudence, 114 yaLe L.J. 203, 206 (2004) (“The Supreme Court’s Penn Central balancing test, which, as a matter of practice, results in deference to the state courts, recognizes the institutional advantages state courts enjoy in constraining regulatory abuse.”). 62 Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1016, 112 S. Ct. 2886, 2894, 120 L. Ed. 2d 798, 813 (1992) (quoting Agins v. City of Tiburon, 447 U.S. 255, 260 (1980)). 63 Penn Central Transp. Co., 438 U.S. at 125 (“Zoning laws are, of course, the classic example….”). 64 City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 720–21, 119 S. Ct. 1624, 1644, 143 L. Ed. 2d 882, 913 (1999) (considering whether a “city’s decision to reject a particular development plan bore a reasonable relationship to its proffered justifications” (emphasis sup- plied)). 65 See supra note 52 and accompanying text. 66 Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 439, 102 S. Ct. 3164, 3178, 73 L. Ed. 2d 868, 884 (1982). 67 See, e.g., Dohany v. Rogers, 281 U.S. 362, 366–67, 50 S. Ct. 299, 301, 74 L. Ed. 2d 904, 911 (1930). 68 Kelo v. City of New London, Conn., 545 U.S. 469, 480, 125 S. Ct. 2665, 2663, 162 L. Ed. 2d 439, 452 (2005) (“With- out exception, our cases have defined that concept broadly, reflecting our longstanding policy of deference to legisla- tive judgments in this field.”). 69 Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 841–42, 107 S. Ct. 3141, 3151, 97 L. Ed. 2d 677, 692 (1987) (“California is free to advance its ‘comprehen- sive program,’ if it wishes, by using its power of eminent domain for this ‘public purpose,’ see U.S. Const., Amdt. 5; but if it wants an easement across the Nollans’ property, it must pay for it.”). 70 See, e.g., Sierra Club v. Fed. Highway Admin., 715 F. Supp. 2d 721, 737 (S.D. Tex. 2010) (describing mitigation requirements in Texas DOT project); North Idaho Cmty. Action Network v. U.S. Dep’t of Transp., 545 F.3d 1147, 1152 (9th Cir. 2008) (describing mitigation requirements in Idaho DOT project). 71 For example, before permitting construction in wet- lands, the Corps is required to ensure that mitigation is provided that exceeds the adverse impact of the project on the wetlands. 33 C.F.R. § 320.4(b)(1) (2014) (“No per- mit will be granted…unless the [Corps] concludes…that the benefits of the proposed alteration outweigh the dam- age to the wetlands resource.”); Protection of Wetlands, 42 Fed. Reg. 26,961 (May 24, 1977) (requiring a finding “that the proposed action includes all practicable mea- sures to minimize harm to wetlands which may result from such use.”); Beurè-Co. v. United States, 16 Cl. Ct. 42, 44 (1988) (“[U]nder this standard, if the Corps concludes that the benefits of wetland development equal the detri- ments, the permit application must be denied.”). See also 49 U.S.C. 303 (requiring a finding that a transportation project “includes all possible planning to minimize harm to the park, recreation area, wildlife and waterfowl ref- uge, or historic site resulting from the use”); 49 U.S.C. § 47106(c)(1)(B) (2014) (requiring a finding that “every reasonable step has been taken to minimize the adverse effect” of an airport development project).

10 requirements were imposed on a private developer, they would be viewed with heightened scrutiny under the essential nexus test, and there would be legitimate constitutional concerns about mitiga- tion requirements that are disproportionate to the anticipated impact of the development.72 These concerns are significantly lessened in the typical government construction project, where the improvement is made to public property rather than private property, and thus there is no “tak- ings” concern. The dispute between a state trans- portation agency and an environmental agency over the appropriate level of environmental mitiga- tion may be just as contentious as a similar dispute between a landowner and a permitting agency. Whereas the essential nexus test applies in the lat- ter case to direct heightened scrutiny to mitigation demands by the permitting agency, a state trans- portation agency must work collaboratively with environmental agencies to negotiate mitigation requirements and obtain necessary permits.73 When the disagreement is between government agencies, substantial deference is owed to the mitigation requirements imposed by the agency charged with protecting the natural resource.74 2. The Essential Nexus Test Applies to Land-Use Exactions as Conditions of Private Development Permit The essential nexus test applies heightened judi- cial scrutiny to conditions imposed by the govern- ment on a landowner, as a result of the government approving a development permit or otherwise lifting an existing land-use restriction, in which the landowner is not otherwise compensated by the government for the imposition of the new condi- tion.75 This test has fairly broad application in a modern regulatory regime, where developers often must obtain permits and approvals from multiple federal, state, and local authorities.76 a. Local Government Exactions for Development Permits.—Most exactions jurisprudence involves permitting decisions or other land-use regulation by local governments, such as municipalities and coun- ties. Since at least 1926, when the U.S. Department of Commerce proposed a model State Zoning Enabling Act for state legislatures to authorize land- use regulation by local government, local govern- ments have been at the forefront of development permitting.77 As a result, local governments have broad authority to consider a wide range of potential adverse impacts of a development—traffic, environ- mental, and aesthetic impacts—and to impose con- ditions to mitigate such impacts.78 In addition, local governments are more likely than other agencies to be statutorily authorized to impose impact fees.79 Almost any significant improvement to real prop- erty requires a building permit from the municipal- ity or county. Most municipalities and counties will also typically have adopted zoning ordinances that prescribe certain land uses that are allowed or not allowed on a given parcel, as well as other land uses that may be allowed with a special or conditional use permit. Proposed developments will often require either a special or conditional-use permit, a variance from the zoning ordinance, or even a 72 See, e.g., Clark Cnty. v. Rosemere Neighborhood Ass’n, 170 Wash. App. 859, 873, 290 P.3d 142, 152 (2012) (describ- ing county stormwater permitting approach modified to satisfy constitutional scrutiny, so that “a developer must mitigate only the increased storm water flow caused by its own development,” then the county “assumes the obliga- tion to mitigate to the historical level as required by” the Clean Water Act). 73 See, e.g., Fla. Keys Citizens Coal., Inc. v. U.S. Army Corps of Eng’rs, 374 F. Supp. 2d 1116, 1132–33 (S.D. Fla. 2005) (describing negotiation process between Corps and Florida DOT over required level of wetlands mitigation for highway project). 74 Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 356, 109 S. Ct. 1835, 1849, 104 L. Ed. 2d 351, 374 (1989) (applying “substantial deference” to regulatory agency’s analysis of environmental impacts and mitigation measures); Chevron, U.S.A., Inc. v. Natural Res. Def. Coun- cil, Inc., 467 U.S. 837, 865, 104 S. Ct. 2778, 2793, 81 L. Ed. 2d 694, 716–17 (1984) (Regulatory interpretations made by “those with great expertise and charged with responsibility for administering the provision” are “entitled to deference [where] the regulatory scheme is technical and complex.”). 75 Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 841, 107 S. Ct. 3141, 3151, 97 L. Ed. 2d 677, 692 (1987) (“We are inclined to be particularly careful…where the actual con- veyance of property is made a condition to the lifting of a land-use restriction, since in that context there is height- ened risk that the purpose is avoidance of the compensa- tion requirement, rather than the stated police-power objective.”). The “compensation requirement” is not satis- fied merely by the government granting the permit. Id. at 833 n.2 (1987) (“[T]he right to build on one’s own proper- ty—even though its exercise can be subjected to legitimate permitting requirements—cannot remotely be described as a ‘governmental benefit.’”). 76 See, e.g., Good v. United States, 39 Fed. Cl. 81, 86–93 (1997) (describing multiple federal, state, and local permits and approvals required for a development). 77 CaLLies, supra note 4, at 33. 78 See Mark Fenster, Takings Formalism and Regula- tory Formulas: Exactions and the Consequences for Clarity, 92 CaL. L. Rev. 609, 623 (2004) (describing the manifold cir- cumstances under which landowners must secure permits from local governments before altering land use). 79 At least 28 states have enacted legislation authorizing local governments to impose impact fees. Michael Castle Miller, The New Per Se Takings Rule: Koontz’s Implicit Revolution of the Regulatory State, 63 am. U. L. Rev. 919, 929 (2014).

11 modification of the zoning map in order for the developer’s proposed use to be permitted. All of these permitting decisions are subject to the essential nexus test, where permits are approved based on the developer satisfying certain conditions. Most permit approvals will come with standard, generally applicable conditions that are narrowly tailored to a legitimate governmental interest and are not con- troversial—for example, to construct according to the local building code, to comply with locally adopted appearance criteria, and other best prac- tices. More controversial (and more likely to be chal- lenged in court) are case-specific conditions intended to ameliorate the impact of the development on the local community, sometimes imposed in response to community resistance to the development. These are the situations in which the local government must take precautions to ensure that the conditions are not unconstitutionally disproportionate to the actual adverse impact of the development. Local government permit approvals will also typ- ically be conditioned on the developer obtaining all necessary permits from applicable regional, state, and federal agencies, such as a highway access per- mit from the state transportation agency or a wet- lands fill permit from the Corps. These situations are addressed briefly in the following section and in detail in the remainder of this digest. b. State Transportation Agency Exactions as Con- ditions of Highway Access Permits.—When the devel- oper requires access to a state highway from the development, there is almost always a requirement to obtain a permit from the state transportation agency, often called a driveway permit, access per- mit, or highway occupancy permit (referenced collec- tively herein as “highway access permits”). The state transportation agency will typically have generally applicable construction standards for roads access- ing the state highway, and these standards are typi- cally not controversial. More controversial will be requirements for the developer to dedicate a portion of the development parcel (e.g., for public access through the development, street widening adjacent to the development, or turn lanes or acceleration and deceleration lanes at the development entrance) or to otherwise mitigate the anticipated impact of the development on the state highway system. It is readily apparent that such highway access permit conditions are subject to the essential nexus test. In cases in which developers challenge state transportation agency permit conditions, however, the courts historically have almost never expressly applied the essential nexus test, instead focusing more specifically on whether the state transporta- tion agency has the statutory authority to impose the condition.80 This focus on the state transporta- tion agency’s statutory authority is related to the first element of the essential nexus test—for exam- ple, determining whether there is a close nexus between the permit condition and a legitimate inter- est of the state transportation agency, such as its dis- cretionary and statutory authority “to protect the safety of the traveling public.”81 Under this inquiry, mitigation measures exacted by state transportation agencies will generally be limited to addressing con- cerns that the legislature has entrusted with the state transportation agency, such as traffic impacts.82 More wide-ranging environmental mitigation mea- sures typically must be left to local government land- use authorities or environmental agencies charged with the protection of specific natural resources.83 80 See, e.g., High Rock Lake Partners, LLC v. N.C. Dep’t of Transp., 366 N.C. 315, 319, 735 S.E.2d 300, 304 (2012) (overturning off-site construction requirement imposed by state transportation agency as not authorized “under the Driveway Permit Statute”); Popple v. Com., Dep’t of Transp., 133 Pa. Commw. 375, 380, 575 A.2d 973, 976 (Pa. Commonw. Ct. 1990) (upholding permit condition requiring the developer to install a traffic signal as a “reasonable exercise” of the state transportation agency’s “regulatory power under…the State Highway Law”); Nardo v. Com., Dep’t of Transp., 123 Pa. Commw. 41, 552 A.2d 718 (1988) (upholding state transportation agency’s permit require- ments including access location and curbing as a reasonable exercise of the state transportation agency’s statutory authority “to control the flow of traffic on all state high- ways [including t]he ingress and egress from the tract to the state highway”). 81 High Rock Lake Partners, LLC v. N.C. Dep’t of Transp., 20 S.E.2d 706, 711 (N.C. Ct. App. 2011), rev’d, High Rock Lake Partners, LLC v. N.C. Dep’t of Transp., 735 S.E.2d 300 (N.C. 2012). 82 Marilyn Newman, The “New” Curb-Cut Permits: Highway Access and Environmental Regulation, 35 boston B.J. 25, 26 (Mar./Apr. 1991) (“[A]n access permit condition must serve the same state interest that under- lies the overall regulatory program, that is, the highway agency’s legitimate interests in preserving the physical integrity, safety and through-traffic capacity of the high- way system.”). 83 Id. at 27 (“[T]he legitimate purpose of…curb-cut controls [for state transportation agencies] is to facilitate traffic flow for various land uses, consistent with the safe- ty and travel needs of the public at large.” General envi- ronmental concerns, “although worthwhile public regula- tory objectives, are best dealt with through conventional local land-use controls.”). See also Wis. Builders Ass’n v. Wis. Dep’t of Transp., 285 Wis. 2d 472, 493, 702 N.W.2d 433, 443 (2005) (concluding that Wisconsin DOT did not have comprehensive authority to regulate land abutting state highways); Ice v. Cross Roads Borough, 694 A.2d 401, 405 (Pa. Commonw. Ct. 1997) (holding that Pennsylvania DOT’s authority to grant highway access permit does not abrogate local government’s ability to impose additional conditions on highway access).