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Takings and Mitigation (2016)

Chapter: III. Off-Site Exactions

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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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Suggested Citation:"III. Off-Site Exactions." National Academies of Sciences, Engineering, and Medicine. 2016. Takings and Mitigation. Washington, DC: The National Academies Press. doi: 10.17226/23619.
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21 impacts via standardized formulas and tailor on- site mitigation conditions accordingly.155 Such stan- dardized approaches employing reliable engineer- ing methods and principles to tailor on-site exactions to mitigate the actual impact of develop- ment will generally satisfy the essential nexus test. III. Off-Site Exactions Frequently, it is not possible to fully mitigate the impact of a proposed development merely by on-site exactions (e.g., requiring the developer to dedicate a portion of the development parcel to public pur- poses). Particularly with regard to infrastructure such as roads, water distribution, and sewer sys- tems, developers recognize that improvements will often be required, on property that the developer does not own, in order to adequately service the new development. In these cases, the permitting agency may seek to condition permits on the developer actu- ally constructing improvements to off-site public utilities or other public property, or otherwise on the developer funding, at least in part, the government’s cost of constructing the improvements.156 Perhaps more controversially, when a development will have adverse environmental impacts that cannot be fully mitigated on site, the government may condition permit approval on the developer’s agreement to fund environmental improvements elsewhere, such as the off-site wetlands mitigation condition in Koontz, in order to minimize the developer’s net environmental impact. Prior to Koontz, a “bare majority” of courts held that the essential nexus test was inapplicable to off- site exactions and monetary demands.157 In Koontz, however, the U.S. Supreme Court clearly resolved the authority split in favor of applying the essential nexus test to such requirements to improve public property imposed as a condition of approving devel- opment permits. This section discusses off-site exactions, such as requirements for developers to construct improvements to public infrastructure (e.g., the state highway system) and to fund environ- mental improvements away from the development site. This section also examines how permitting agencies such as state transportation agencies can ensure that such off-site permit conditions with- stand constitutional scrutiny. A. Off-Site Highway and Infrastructure Improvements There is growing and widespread recognition that off-site transportation improvements, both highway improvements and consideration of other transportation modes, must be funded at least in part by the developers whose developments will significantly impact the transportation system.158 Even before Nollan and Dolan, a 1986 NCHRP legal research study on exactions concluded that it was more difficult for off-site highway exactions than on-site road requirements to withstand judi- cial challenge.159 As a result of Koontz, it is now clearly understood that the essential nexus test applies when developers are required to construct improvements to public infrastructure, such as improvements to highway intersections or arterial streets. The constitutional concern with such a requirement is that the public infrastructure may be used by others, not just the tenants of the new development, so the permitting agency bears the burden (under the essential nexus test) of demon- strating that the developer is not forced to bear a disproportionate share of the expense of benefits enjoyed by the broader public. At the time of the Nollan and Dolan decisions, local governments and state transportation agencies were already beginning to condition development permits on the construction of off-site transporta- tion improvements to mitigate the impacts of 155 See, e.g., FLa. aDmin. CoDe ann. r. 62-345.100 (2013) (seeking to establish “a standardized procedure for assess- ing the functions provided by wetlands and other surface waters, the amount that those functions are reduced by a proposed impact, and the amount of mitigation neces- sary to offset that loss” in order to execute FLa. stat. § 373.414(18) (2012)). 156 Molly Cohen & Rachel Proctor May, Revolutionary or Routine? Koontz v. St. Johns River Water Management Dis- trict, 38 HaRv. envtL. L. Rev. 245, 254 (2014) (“These fees often pay for direct and easily quantifiable infrastructure needs, such as widening a roadway to accommodate traffic generated by the residents of a new subdivision, or laying new water and wastewater pipes to serve new homes.”) 157 Breemer, supra note 41, at 382. 158 David Levinson, Paying for the Fixed Costs of Roads, 39 J. tRansPoRt eCon. & PoL’y 279, 287 (2005) (“[M]ost juris- dictions in the United States at present do not exact condi- tions from developers that at all compensate for the develop- ment’s impact on infrastructure.”). See also Ackerly, supra note 90, at 294: The Supreme Court should relax its new rough pro- portionality test to allow intermodal transportation solutions. If a municipality shows that a new develop- ment will increase traffic congestion, then the Court should allow flexibility in exactions that will encourage city planners to explore all possible solutions, not mere- ly more roads and more highways. 159 vanCe, supra note 5, at 3, 11 (“Exactions for the im- provement of off-site roads have met…with mixed results. Generally speaking, it is necessary to establish a clear con- nection between traffic conditions on such exterior roads and the [development] in order to sustain the validity of such exactions.”).

22 development.160 In Nollan and Dolan, the U.S. Supreme Court appeared to expressly authorize permit conditions that would require developers to construct off-site transportation improvements to mitigate traffic impacts of the development.161 In part because such conditions do not encroach on the developer’s real property, however, a number of jurisdictions in the years immediately following Dolan concluded that the essential nexus test did not apply to off-site exactions, such as requirements to fund improvements to the transportation sys- tem.162 Over the years leading up to Koontz, a hand- ful of jurisdictions gradually came to the conclusion that the distinction between on-site and off-site exactions was artificial, and that the essential nexus test should apply to requirements to improve the transportation infrastructure.163 Although the Koontz decision makes it clear that the essential nexus test applies to any such off-site exaction, pre-Koontz courts rarely expressly applied the essential nexus test when evaluating off-site highway exactions, typically focusing instead on whether the state transportation agency or other permitting agency had the authority to impose off- site exactions.164 Certainly, as a preliminary matter, the question of statutory authority to impose the condition should be evaluated as part of the first ele- ment of the essential nexus test, to determine whether the permit condition serves a legitimate governmental interest. By focusing on statutory authority and failing to consider rough proportional- ity, however, pre-Koontz courts could tend to be overly deferential to permit conditions, which was not in the spirit of the essential nexus test. For example, in Vaughn v. City of North Branch,165 a developer challenged conditions imposed by a municipality that would require the developer to improve parts of the public road system surround- ing the proposed development before construction of the proposed development could begin.166 Rather than strictly scrutinize the City’s conditions under the essential nexus test, the U.S. District Court for the District of Minnesota instead dismissed the developer’s challenge after shifting the burden to the developer to “show that by state statute or regu- lation, the City was substantially limited with respect to its ability to approve development plans.”167 The court (probably incorrectly) failed to consider whether the conditions were roughly proportional to the impact of the development. Like- wise, in High Rock Lake Partners, LLC v. North Carolina Department of Transportation,168 a devel- oper challenged a condition imposed by the state transportation agency requiring the developer to improve a railroad crossing located approximately one-quarter mile from the proposed entrance to the development. Applying logic similar to the essential 164 CaLLies, supra note 4, at 235: [L]ocal governments may require land or money from the developer to help meet needs for schools, parks, off-site highway improvements, and water and sewer service. These exactions of land or fees in lieu of land dedication, impact fees and assessments have been the target of a significant amount of litigation. The usual challenges focus on the statutory authority to impose the exaction and the constitutional propri- ety of the methodology for apportioning the cost based on due process, taking, and equal protection grounds. 165 No. CIV.00–2370 MJD/JGL (D. Minn. Oct. 30, 2001), aff’d, 103 F. App’x 73 (8th Cir. 2004), cert. denied, 543 U.S. 1065 (2005). 166 Id. at *2 (“[N]o development could occur until Eaglewood Avenue was improved to City standards.… [The developer] alleges that this condition would have required him to pay the costs to improve the street that would benefit adjoining property owners, some of which were council members.”). 167 Id. at *4. 168 217 N.C. App. 442, 720 S.E.2d 706 (N.C. Ct. App. 2011), rev’d, 735 S.E.2d 300 (N.C. 2012). 160 Newman, supra note 82, at 25: The regulatory focus, at least in many urbanized states, has substantially shifted to the broad impacts of a property’s traffic generation on the functioning of the highway system as a whole. The permit process now seeks affirmatively to address major develop- ment traffic impacts by conditioning “access” to state highways on, for example, developer provision of major highway improvements, “off-site” mitigation well beyond the site driveway, and traffic limits and traffic reduction programs. 161 Dolan v. City of Tigard, 512 U.S. 374, 394, 114 S. Ct. 2309, 2321, 129 L. Ed. 2d 304, 322 (1994) (“If petition- er’s proposed development had somehow encroached on existing greenway space in the city, it would have been reasonable to require petitioner to provide some alterna- tive greenway space for the public either on her property or elsewhere” (emphasis supplied)) (citing Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 836 (1987)). 162 See, e.g., B & C Investments of Ark., Inc. v. City of Fort Smith, Ark., No. 06 2002, 2007 U.S. Dist. LEXIS 5574, at *6 (W.D. Ark. Jan. 25, 2007) (holding that the essential nexus test is inapplicable to road improvement assess- ment imposed as a condition of granting building permit); McCarthy v. Leawood, 257 Kan. 566, 894 P.2d 836 (1995) (holding Dolan inapplicable to traffic impact fee); Blue Jeans Equities West v. San Francisco, 3 Cal. App. 4th 164, 4 Cal. Rptr. 2d 114 (1992) (holding Nollan inapplicable to transit impact development fee). 163 See, e.g., Town of Flower Mound v. Stafford Estates Ltd., 71 S.W.3d 18 (Tex. App. 2002) (applying essential nexus test to road improvement exaction, where developer would be required to replace existing street); Home Build- ers Ass’n of Dayton v. Beavercreek, 89 Ohio St. 3d 121, 729 N.E.2d 349 (Ohio 2000) (applying essential nexus test to development fee to fund new roads, and requiring the new roads to benefit the development); N. Ill. Home Builders Ass’n v. DuPage County, 165 Ill. 2d 25, 649 N.E.2d 384 (1995) (applying essential nexus test to traffic impact fee).

23 nexus test, the North Carolina Department of Transportation (NCDOT) Driveway Permit Appeals Committee initially upheld the condition because “the increase in traffic at the crossing is caused solely by the development, and widening of the crossing is necessary to protect the safety of the traveling public.”169 Like the District of Minnesota in Vaughn, the North Carolina Court of Appeals (probably incorrectly) shifted the burden to the developer to show that NCDOT did not have statu- tory authority to impose the off-site construction condition.170 Because the relevant statute only described NCDOT’s authority to impose conditions at the driveway itself (e.g., “acceleration or decelera- tion lanes, traffic storage lanes, or medians”), the North Carolina Court of Appeals concluded that the developer failed to meet its burden171 and upheld the condition without applying the essential nexus test. On appeal, however, the North Carolina Supreme Court overturned the condition, not based on the essential nexus test but rather by concluding that NCDOT did not have statutory authority to condi- tion driveway permits on off-site improvements.172 As noted above, a handful of state courts prior to Koontz did apply the essential nexus test to off-site highway improvement conditions.173 Notably, in Town of Flower Mound v. Stafford Estates Ltd. Partner- ship,174 the Texas state courts applied the essential nexus test to overturn a town’s condition that the developer reconstruct (with a rigid concrete surface) an existing asphalt-surface road outside the devel- opment in exchange for a development permit. Although agreeing that the “safety” and “durability” of the road were legitimate governmental interests, the Town was still required to show that its require- ment that the road “be demolished and repaved with concrete” substantially advanced those legitimate governmental interests.175 With respect to the second element of the essential nexus test, it is not sufficient for the permitting agency to merely assert that a generally applicable requirement “to improve abutting roadways is roughly proportional to the impact of all developments on all roadways.”176 The permitting agency must make an “individualized determina- tion” that the specific off-site highway improvements are “roughly proportional to the projected impact” of the development.177 In Flower Mound, the off-site construction condition failed to satisfy the rough pro- portionality prong because “[t]he road was in good shape at the time, and…the development would increase traffic only about 18%.”178 Now that Koontz has made it clear that off-site construction exactions are subject to the essential nexus test, the question is how can state transporta- tion agencies and local governments ensure that such exactions withstand constitutional scrutiny. This is of tremendous importance to state transpor- tation agencies, as off-site highway exactions are the preferred method of mitigating traffic impacts—a vast majority of the state transportation agencies responding to the survey conducted for this digest (23 out of 27, or 85 percent) reported that they regu- larly require developers to construct or fund off-site improvements to the highway system, and two other state transportation agencies reported that they occasionally impose such requirements. Survey respondents provided a long list of typical improve- ments that they will require private developers to make to the state highway system: • Turn lanes and associated widening. • Acceleration or deceleration lanes. • Travel lane widening or additional travel lanes. • Traffic signal modifications and additions. • Installation of median islands. • Installation of sidewalk, curb, and gutter. • Pavement resurfacing. • Pavement restriping or upgraded pavement markings. 169 Id. at 711. The committee relied on NCDOT’s Policy for Street and Driveway Access to North Carolina High- ways, which provided, “The NCDOT may require the applicant to provide offsite roadway improvements on public facilities in order to mitigate any negative traffic impacts created by the proposed development.” Id. 170 Id. at 712–13. 171 Id. (“N.C.G.S. § 136–18(29) does not address improve- ments away from a driveway connection. . . .Because we hold N.C.G.S. § 136–18(29) does not address the improve- ments, petitioners’ argument is overruled.”). 172 High Rock Lake Partners, LLC v. N.C. Dep’t of Transp., 366 N.C. 315, 321, 735 S.E.2d 300, 304 (2012) (“The conditions imposed by DOT in this case are not permitted under the Driveway Permit Statute. The stat- ute authorizes no requirement to make improvements away from the applicant’s property.”). 173 See also Sefzik v. City of McKinney, 198 S.W.3d 884 (Tex. Ct. App. 2006) (holding that essential nexus test applies to permit condition requiring developer to con- struct or fund construction of off-site roads); Benchmark Land Co. v. City of Battle Ground, 103 Wash. App. 721, 14 P.3d 172 (2002) (overturning condition requiring improvement of adjoining public street for failing to sat- isfy the essential nexus test) (declining to apply essential nexus test); J.C. Reeves Corp. v. Clackamas County, 131 Or. App. 615, 623, 887 P.2d 360, 364–65 (1994) (remand- ing for county to consider whether its requirement for developer to make off-site improvements to roads outside the development satisfied essential nexus test). 174 71 S.W.3d 18 (Tex. Ct. App. 2002). 175 Town of Flower Mound v. Stafford Estates Ltd. Partnership, 135 S.W.3d 620, 643–44 (Tex. 2004). 176 Id. at 644. 177 Id. 178 Id.

24 • Grade or sight-line improvements. • Improved highway lighting. • Improved road signage. Most survey respondents indicated that the developers are required to construct the improve- ments themselves (e.g., through a general contrac- tor licensed in the highway classification), rather than fund the state transportation agency to con- struct the improvements. As a threshold matter, the state transportation agency or local government must have the specific authority to impose off-site exactions.179 The spe- cific authority will vary from one state transporta- tion agency to the next. As seen in the High Rock Lake case previously discussed, the North Carolina Supreme Court concluded that NCDOT did not have such authority to impose off-site highway conditions.180 The Massachusetts Department of Transportation (MassDOT), however, has broader statutory authority, when a development will “gen- erate a substantial increase in or impact on traffic,” to require the developer “to install and pay for… standard traffic control devices, pavement mark- ings, channelization, or other highway improve- ments to facilitate safe and efficient traffic flow.”181 Assuming the state transportation agency or local government has the authority to require off- site improvements, the requirement imposed must satisfy the essential nexus test by showing that it is closely related to the legitimate government pur- pose (e.g., that it will actually facilitate safe and effi- cient traffic flow) and that it is roughly proportional to the anticipated impact of the development. To sat- isfy this test, an individualized determination must be made: Where exactions are meant to fund off-site facilities called for by development projects, both the remoteness and pro- portionality tests must be satisfied by studies (1) showing the future scope of growth, (2) defining the needed facilities, (3) defining facility costs allocated to new growth, and (4) specifying service units and service areas.182 At minimum, the studies must quantify both the anticipated impact of the proposed development (on traffic or other infrastructure) and the anticipated mitigation of the proposed improvement. Although an individualized determination is required, for the purpose of traffic impacts or other infrastructure impacts, these can typically be calculated by stan- dardized, generally applicable formulas.183 As noted previously, prior to imposing an exaction, state transportation agencies typically require a traffic impact study,184 in which engineers apply reliable principles and methods to assess and quantify the additional trips generated by a proposed develop- ment, as well as the increase in highway capacity resulting from proposed highway improvements (e.g., new roads or additional travel lanes for exist- ing roads, or intersection improvements such as turn lanes).185 State transportation agencies also typically have standardized methods for calculating when such off-site improvements as turn lanes and signal improvements are warranted, based on the traffic anticipated by the development. The traffic impact study and related warrant calculations thus allow the state transportation agency to demon- strate that the required off-site highway improve- ments are roughly proportional to the development’s traffic impact, satisfying the essential nexus test.186 B. Off-Site Environmental Improvements In Koontz, the U.S. Supreme Court expressly applied the essential nexus test to the requirement to construct new wetlands on public land as a condi- tion for developing wetlands on private land. As was the case with off-site highway exactions, courts prior to Koontz often concluded that the essential nexus test did not apply to off-site environmental exac- tions, i.e., requirements to perform environmental mitigation elsewhere (typically on government 179 CaLLies, supra note 4, at 259 (“When exactions falter it is usually for the reason that express statutory author- ity is lacking.”). 180 High Rock Lake Partners, LLC v. N.C. Dep’t of Transp., 735 S.E.2d 300, 304 (N.C. 2012). 181 mass. gen. LaWs ann. ch. 81, § 21 (2008). 182 CaLLies, supra note 4, at 256. 183 Cohen & May, supra note 156, at 256 (“[M]any kinds of fees, such as fees to fund wastewater pipes or mitigate traffic impacts, are fairly easy to quantify using standard- ized methodologies: a residential unit requires X inches of wastewater pipe; commercial space generates Y vehicle trips per square foot.”). 184 See supra note 107 and accompanying text. 185 It is typical for traffic impact studies to calculate trip generation “using the techniques of the most recent Insti- tute of Transportation Engineers Trip Generation Manu- al.” 720 mass. CoDe Regs. 13.02 (2015). See also N. Ill. Home Builders Ass’n, Inc. v. County of Du Page, 251 Ill. App. 3d 494, 502, 621 N.E.2d 1012, 1020 (1993) (upholding county’s assessment of traffic impact fees under the rational nexus test based on county’s use of detailed mathematical travel modeling as well as “trip-generation data collected by the Institute for Transportation Engineering.”). 186 Newman, supra note 82, at 26–27: To the extent that the traffic-analysis methodol- ogy…approximately equates the scope of the required improvements with the extent of the project’s own traffic congestion impacts, the impact-nexus standard should be satisfied. Properly used and documented, this type of analysis should prevent imposition of oth- erwise desirable traffic improvements unrelated to the traffic needs of the project under study.

25 property) to offset the negative environmental impacts of a development. A representative example is Speights v. City of Oceanside,187 in which a devel- oper challenged development permit conditions that in general required him to provide whatever storm- water drainage the City ultimately deemed neces- sary.188 The City’s drainage requirements expanded as the project proceeded, and ultimately the City required the developer (as a condition for granting a certificate of occupancy) to improve stormwater facilities under nearby public roads, as well as on adjacent property owned by the public school sys- tem.189 In doing so, the City apparently acknowl- edged the existing inadequacy of storm drainage in the area and did not specifically limit the stormwa- ter conditions to mitigating the impacts of the devel- opment.190 Nevertheless, the California Court of Appeal upheld the conditions, concluding that the essential nexus test did not apply, because (unlike Dolan) the developer was required to construct the stormwater improvements on government property and was not required to dedicate a portion of his own parcel for stormwater improvements.191 The court concluded (probably incorrectly) that the essential nexus test did not apply to off-site exac- tions, and therefore it did not consider whether the requirement was disproportionate to the impact of the development. As a result of Koontz, it is clear that the essential nexus test is to be applied to permit conditions requiring the developer to fund environmental improvements (e.g., wetlands improvements, drain- age improvements, reforestation) to public property away from the development site. This necessarily includes banking programs, in which developers can perform off-site environmental mitigation to earn credits that allow remotely located development projects to have adverse environmental impacts.192 With respect to the first element of the essential nexus test, the close nexus requirement or what some courts refer to as the “remoteness test,”193 it remains to be seen whether this can be satisfied by off-site environmental mitigation that is too far removed from the development site.194 With respect to the rough proportionality requirement, as with traffic mitigation conditions, the implication of the essential nexus test is that the imposed environ- mental mitigation condition must be supported by studies quantifying the anticipated adverse envi- ronmental impact of the development and the improvement that can be achieved by the proposed mitigation measure. An interesting question moving forward will be whether, in practice, the essential nexus test results in any substantial restrictions on environmental mitigation conditions imposed by environmental agencies, which are accustomed to judicial deference with respect to the natural resources they are autho- rized to protect.195 Numerous environmental and natural resource statutes suggest that when a natu- ral resource is impacted, the mitigation is required to exceed the adverse impact.196 Certainly, with respect to government construction such as state transportation agency projects, environmental agen- cies are accustomed to imposing mitigation require- ments that may exceed the adverse impact of the project.197 Such a requirement imposed on private developers would appear to constitute a taking under the essential nexus test, to the extent that the condition imposed exceeds the adverse impact of the development. The effect of this on the practice of state transportation agencies, however, is likely to be minimal. Of the state transportation agencies that responded to the survey conducted for this 187 2009 Cal. App. Unpub. LEXIS 4941 (Ct. App. Cal. Jun. 18, 2009), cert. denied, 555 U.S. 937 (2010). 188 Id. at *1 (One condition “required storm drain sys- tems to be designed and installed to the city engineer’s satisfaction.”). 189 Id. at *2–3. 190 Id. at *3. 191 Id. at *15 (“City’s imposition of a requirement that [the developer] increase the size of an existing drain and otherwise construct a drainage system on the Dis- trict property can in no way be characterized as a per se physical taking of his own property.”). 192 See, e.g., Save our Peninsula Comm. v. Monterey Cnty. Bd. of Supervisors, 87 Cal. App. 4th 99, 142, 104 Cal. Rptr. 2d 326, 358 (2001) (requiring county to show that there is a nexus between permitting increased groundwater pumping on one site and a mitigation con- dition requiring the developer to reduce groundwater pumping at a remote location). 193 Batch v. Town of Chapel Hill, 92 N.C. App. 601, 611, 376 S.E.2d 22, 29 (N.C. Ct. App. 1989). 194 See, e.g., Pidot, supra note 85, at 138 n.24 (express- ing concern that lower courts could “seize” on the Koontz court’s reference to “offsite mitigation,” and begin holding off-site mitigation conditions to a different judicial stan- dard than traditional on-site mitigation conditions). 195 Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 865, 104 S. Ct. 2778, 2793, 81 L. Ed. 2d 694, 716 (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.”). 196 See supra note 71 and accompanying text. 197 See, e.g., 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 refuge, 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).

26 digest, almost all of them reported that they do not impose off-site environmental mitigation conditions as a requirement for highway access permits. C. Special Considerations with Impact Fee Programs A special category of off-site exaction is what is commonly referred to as an impact fee, when, in lieu of having the developer construct improvements to public property, the developer contributes to a fund for improvements. If developers are going to be required to expend resources to make improvements to public property, government agencies would often prefer to direct those resources toward more com- prehensive capital improvements designed to improve the level of service, rather than to merely maintain an existing level of service. This makes impact fee programs attractive.198 In Koontz, how- ever, the U.S. Supreme Court expressly applied the essential nexus test to monetary exactions, such as impact fees. This means that the individual devel- oper cannot be forced to fund an improved level of service in its entirety, because such a requirement would exceed the impact of the development. As long as the developer is only required to fund a share that is proportionate to the impact of the development, however, the rough proportionality requirement should be satisfied. Such a generally applicable impact fee program would allow the cost of needed public improvements to be distributed over multiple private developments that collectively contribute to the need for the improvements.199 The applicability of the essential nexus test to monetary exactions has other important implica- tions for impact fee programs.200 Under the first element of the essential nexus test, the impact fees must be dedicated to mitigating the adverse impacts caused by the development. Under the second ele- ment of the essential nexus test, there must be an individualized determination quantifying the antic- ipated impact of the new development. Although impact fees (for traffic or environmental mitigation) may be more justifiable than off-site construction requirements, they can still be overturned for being disproportionate.201 Some academics have proposed that the constitu- tionality of an impact fee program under the essen- tial nexus test may be analyzed by considering the following factors:202 1. Spatial—The distance between the develop- ment paying the impact fee and the facilities con- structed with the impact fees paid. 2. Temporal—The length of time elapsing between collection of the impact fee and construc- tion of the facilities. 3. Amount—The amount of the impact fee in relation to the actual costs of the facilities. 4. Need—The relationship between the burden created by the development and the increased facil- ity needs. 5. Benefit—The ability of the constructed facili- ties to satisfy the facility needs resulting from the development; and 6. Earmarking—An assurance that the impact fees collected from the development are restricted solely for the provision of capital facilities of the type for which the fees were collected and for facili- ties serving the new development. These factors certainly provide a framework for evaluating the nexus and rough proportionality ele- ments. It largely remains to be seen, however, how courts will approach the task of subjecting impact fees to the essential nexus test.203 The remainder of this section addresses some special considerations related to impact fees, which may influence the legal analysis in a given situation. 201 CaLLies, supra note 4, at 256 (“Of course, use of such impact fees does not absolve government agencies from Dolan’s ‘rough proportionality’ standard.”). 202 Id. at 271. 203 Some state courts have already begun carving out judicial exceptions to Koontz, by finding that impact fee programs are actually land-use regulations not subject to the essential nexus test. See, e.g., Cal. Bldg. Indus. Ass’n v. City of San Jose, 61 Cal. 4th 435, 351 P.3d 974 (Cal. 2015) (holding that an ordinance requiring residential project developers to either construct affordable housing off site, dedicate on-site property for affordable housing, or pay an impact fee in lieu of construction or dedication, is a land- use regulation akin to a price control, not subject to the essential nexus test). 198 Newman, supra note 82, at 28 (“Financing mecha- nisms such as betterment assessments or corridor-specific impact fees could enhance the regulatory system by mak- ing possible developer contribution to more comprehen- sive transportation improvements and joint mitigation approaches, thus sharing costs among existing traffic gen- erators, multiple new developments, and the public.”). 199 CaLLies, supra note 4, at 256 (Where capital improvements “are hard to allocate to individual devel- opments that yield incremental impacts…, municipali- ties should use impact fees, which distribute costs for such improvements over many developments.”). 200 Applying the essential nexus test to impact fees requires a court to determine (1) whether there is a reasonable connection between the need for additional capital facilities and the growth in population gener- ated by the subdivision; and (2) if a reasonable connec- tion exists, whether there is a reasonable connection between the expenditure of the funds collected through the imposition of an impact fee, and the benefits accru- ing to the subdivision. Home Builders Ass’n of Dayton & the Miami Valley v. Beavercreek, 729 N.E.2d 349, 354–55 (Ohio 2000).

27 1. State Enabling Legislation Permitting agencies typically must be authorized by their state legislature to impose impact fees in lieu of physical exactions. At least 28 states have enacted legislation specifically authorizing local gov- ernments to charge impact fees.204 Case law involv- ing legal challenges to impact fees will undoubtedly expand as more local governments and permitting agencies gain authority to impose impact fees. For the most part, state transportation agencies have not been specifically authorized to impose impact fees. Six of the 27 state transportation agen- cies that responded to the survey conducted for this digest, however, described some experience with monetary exactions, including impact fees, “escrow” fees, or mitigation funds (for both transportation and environmental impacts). Some of the survey respon- dents indicated that when local government bodies other than state transportation agencies have the statutory authority to impose impact fees, those fees collected by local governments can generally be used to fund improvements to the state highway system. The existence of a statute authorizing an agency to impose impact fees for specific purposes is persua- sive evidence that the impact fee program serves a legitimate governmental purpose, the first element of the essential nexus test. Furthermore, almost all of the 28 statutes authorizing impact fees specifi- cally limit the amount of the impact fee for a given development to the proportionate share of the public burden that is reasonably attributable to the impact of the proposed development,205 i.e., the rough pro- portionality element of the essential nexus test. Thus, where the imposed impact fee conforms to the enabling statute, it should generally comply with the essential nexus test. Of course, the constitution- ality of a given impact fee program will depend in large part on the specific details of programs created by local governments pursuant to the enabling stat- ute and how the programs are administered. 2. Legislative Exactions Versus Adjudicative Exactions By expressly applying the essential nexus test to monetary exactions, and also to cases in which devel- opment permits are denied because the developer refuses the condition proposed by the permitting agency, Koontz effectively closed two potential loop- holes that some permitting agencies may have tried to use to effectively circumvent the stricter scrutiny of the essential nexus test. In retrospect, it seems clear that these loopholes had to be closed in order to give any effect to the Nollan and Dolan decisions. Otherwise, permitting agencies seeking to avoid the stricter scrutiny of the essential nexus test could merely transform their demands for real property to demands for money, or could simply deny permits until the developer accepted the conditions proposed by the permitting agency. Koontz, however, did not specifically address a much broader potential loophole: the distinction between adjudicative and legislative exactions. Numerous courts following Nollan and Dolan have concluded that the heightened scrutiny of the essential nexus test only applies to individualized, discretionary administrative decisions affecting a particular parcel of real property, not to generally applicable assessments that are applied automati- cally or ministerially to all similarly situated permit applications.206 In one of the earliest and most influ- ential of these cases, Ehrlich v. City of Culver City,207 the Supreme Court of California concluded that the essential nexus test applied to ad hoc mon- etary exactions but not to legislatively imposed impact fees.208 A concurring opinion explained the rationale behind the decision: Although development fees are not physical takings of property, …both physical and monetary exactions require developers to directly contribute valuable assets to the public weal in exchange for permission to develop their property. In both cases, there is a potential for the 204 Miller, supra note 79, at 929. 205 Cohen & May, supra note 156, at 254. See, e.g., aRk. CoDe. ann. § 14–56–103 (authorizing local governments to impose impact fees, but limiting such fees to costs for new public facilities reasonably attributable to development). See also Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2602, 186 L. Ed. 2d 697, 717 (2013) (“[S]tate law normally provides an independent check on excessive land use permitting fees.”). 206 See, e.g., Norcal Inv. Partners, L.P. v. City of Redding, No. C061070, 2010 Cal. App. Unpub. LEXIS 1157, at *10–11 (Cal. Ct. App. Feb. 18, 2010) (concluding that heightened scrutiny of essential nexus test is inapplicable to highway improvement impact fee legislation); Rogers Machinery, Inc. v. Washington County, 181 Or. App. 369, 45 P.3d 966 (Ct. App. Or. 2002) (concluding that heightened scrutiny of essential nexus test is inapplicable to a trans- portation improvement fee that is calculated based on a legislative formula); Homebuilders Ass’n of Metro. Agen- cia La Esperanza Corp., Inc. v. Orange Cnty. Bd. of Sup’rs, No. G027288, 4th Appellate Division, California (Cal. Ct. App. Apr. 24, 2002) (declining to impose heightened scru- tiny on traffic impact fees that were calculated based on the square footage of the proposed development project at the time of permitting). 207 12 Cal. 4th 854, 911 P.2d 429 (Cal. 1996). 208 The court concluded that the essential nexus test applied to an ad hoc “recreational fee” specifically imposed on the developer in lieu of the developer constructing public recreational facilities as requested by the city. Id. at 449. However, the court concluded that the essential nexus test did not apply to a generally applicable “art fee” that applied to all development permits and was calculated as 1 percent of the proposed building value. Id. at 450.

28 government to engage in extortionate behavior. This risk diminishes when the fee is formulated according to pre- existing statutes or ordinances which purport to ratio- nally allocate the costs of development among a general class of developers or property owners. …But when the fee is ad hoc, enacted at the time the development appli- cation was approved, there is a greater likelihood that it is motivated by the desire to extract the maximum reve- nue from the property owner seeking the development permit, rather than on a legislative policy of mitigating the public impacts of development or of otherwise reason- ably distributing the burdens of achieving legitimate gov- ernment objectives.209 Although most may agree with the Ehrlich court that there is a greater likelihood of extortion in an adjudicative exaction than a legislative exaction, of course, this does not mean that legislative exactions are not required to conform to the essential nexus test.210 Legislative exactions, by their generally applicable nature, are less likely to be extortionate simply because they apply to everyone who submits a development permit—it is harder for the permit- ting agency to ignore the complaints of everyone rather than the few, so generally applicable condi- tions will naturally tend to be less onerous. In addi- tion, the public process by which legislation and implementing regulations are enacted will tend to temper legislative formulas for calculating gener- ally applicable impact fees, as there will be political pressure to limit the fees to the burden imposed by the development.211 It is still possible, however, for overreaching legislation to be enacted, and there is nothing in the U.S. Supreme Court’s exactions jurisprudence that specifically limits the essential nexus test to adjudicative exactions.212 In fact, both Nollan and Dolan, to some degree, involved the fairly straightforward application of generally appli- cable legislation or policy, and in both cases the Court determined that the essential nexus test applied.213 The distinction between legislative and adjudicative exactions is often unclear, and an exception to the essential nexus test for legislative exactions could result in the type of confusion and contradictory outcomes that characterized pre- Koontz case law involving off-site and monetary exactions, as the outcome of a given case would depend on whether the court finds that a given exac- tion is legislative or adjudicative.214 Numerous courts therefore disagree with the Ehrlich line of cases and apply the essential nexus test to both legislative and adjudicative exactions. Because impact fees are typically calculated based on a generally applicable formula, perhaps prescribed by the enabling legislation itself or within its implementing regulations, an exemption from the essential nexus test for legislative exactions could effectively render impact fee programs immune from heightened judicial scrutiny. There- fore, some academics have concluded that the real impact of the Koontz decision depends on whether the essential nexus test is ultimately deemed to apply to legislative, as well as adjucative, exactions: If lower courts interpret legislatively imposed impact fees as similar to user fees, and thus outside of Koontz’ broad appli- cation of Nollan/Dolan, the decision’s impact will likely be relatively contained. If courts instead apply Koontz to all impact fees, erasing the longstanding legislative/ad hoc dis- tinction recognized by many states, the on-the-ground effect will likely be considerable. An across-the-board application of Koontz to all monetary exactions would force state and local governments to make individualized determinations of property owners’ impacts without room for the local variation that courts in many states have been careful to preserve, and would indeed work a revolution on the traditionally local area of land use planning and regulation.215 The U.S. Supreme Court, however, in Horne v. Department of Agriculture,216 may have recently 209 Id. at 459–60 (J. Mosk, concurring). 210 See, e.g., Parking Ass’n of Ga. Inc. v. City of Atlanta, 515 U.S. 1116, 1117–18, 115 S. Ct. 2268, 132 L. Ed. 2d 273–74 (1995) (Thomas, J., dissenting from a denial of the petition for a writ of certiorari) (“It is not clear why the existence of a taking should turn on the type of govern- mental entity responsible for the taking. A city council can take property just as well as a planning commission can. Moreover, the general applicability of the ordinance should not be relevant in a takings analysis.”). 211 See, e.g., Curtis v. Town of S. Thomaston, 1998 Me. 63, 708 A.2d 657, 660 (1998) (“[A] legislative rule…repre- sents a carefully crafted determination of need tempered by the political and legislative processes rather than a ‘plan of extortion’ directed at a particular land owner.”). 212 Breemer, supra note 41, at 405 (“Because the risk of government extortion is present in the legislative setting, the essential nexus test cannot reasonably be limited to exactions imposed pursuant to an adjudicative process.”). 213 Dolan v. City of Tigard, 512 U.S. 374, 380, 114 S. Ct. 2309, 2314, 129 L. Ed. 2d 304, 313 (1994) (overturning open space and greenway requirements required under community development code); Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 830, 107 S. Ct. 3141, 3145, 97 L. Ed. 2d 677, 685 (1987) (overturning condition required by State Coastal Act requiring that access condition be imposed if new house is 10 percent larger than the house it is replacing). 214 See, e.g., Wolf Ranch, LLC v. City of Colorado Springs, 220 P.3d 559, 568–69 (Colo. 2009) (Eid, J., dissenting) (“In my view, the drainage fee schedule lost its character as a ‘legislatively formulated assessment’ once Colorado Springs considered, on an individualized basis, whether it should impose the drainage fees on Wolf Ranch or exempt the property….”); B.A.M. Dev., L.L.C. v. Salt Lake Cnty., 2006 Utah 2, 128 P.3d 1161, 1170 (2006) (“Some land-use decisions fall neatly within the legislative/adjudicative categorical framework. Most do not.”). 215 Cohen & May, supra note 156, at 257. 216 135 S. Ct. 2419, 192 L. Ed. 2d 388 (2015).

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TRB's National Cooperative Highway Research Program (NCHRP) Legal Research Digest 70: Takings and Mitigation explores the extent to which permitting agencies are able to advance public policy goals in the land-use permitting and project development processes, or at what point they are considered unconstitutional exactions. This digest provides updated legal research regarding the legal standard for exactions, including the impact of the 2013 Koontz v. St. John’s River Water Management District decision on the ability of state transportation agencies and other permitting agencies to advance public policy goals in the land-use permitting and project development processes. The digest also clarifies, to the extent possible, the point at which such exactions become unconstitutional takings and the application of the essential nexus test to both on-site and off-site exactions, to address impacts to the highway system and environmental system impacts.

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