An analysis of affordable/work-force housing initiatives and their legality in the state of Florida.

• Jurisdiction: United States
• Date: 01 July 2008
• Author: Marshall, J. Michael,Rothenberg, Mark A.
• Published date: 01 July 2008
• Author: Marshall, J. Michael

In Florida, "local governments have no ... authority to tax, other than ad valorem taxes, except as provided by general law." (1) Up until the middle of the 20th century, local governments in Florida relied almost exclusively on public revenue sources, such as ad valorem taxes, to fund capital growth. However, over the past 40 years, local governments have increasingly turned to private revenue sources by imposing impact fees and exactions on new development. "The basic theory behind ... impact fees [i]s that users of capital facilities such as sewers or roads could fairly be charged the cost of providing the additional facilities required for their use." (2) This type of cost-shifting helps local governments finance necessary infrastructure improvements without dipping into the public coffers. (3) Nevertheless, impact fees and development exactions must not violate the Florida Constitution, U.S. Constitution, or any federal legislation that binds the states. (4) Many of the early attempts in Florida to impose impact fees were challenged on the basis that such fees constituted an illegal and unconstitutional tax. (5) From those early cases evolved a test that local governments must satisfy to lawfully impose impact fees or development exactions.

The Impact Fee Rationale

The seminal case addressing the legal requirements attendant to the assessment of an impact fee is the Florida Supreme Court case of Contractors and Builders Association of Pinellas County, et al. v. City of Dunedin, 329 So. 2d 314 (Fla. 1976). The Dunedin case involved a challenge to a City of Dunedin ordinance that required payment of a connection fee as a condition for receiving the city's water and sewer services. The city claimed that the ordinance simply raised revenue that was needed for expanding the water and sewer systems to accommodate the increased demand that each new connection would create. The plaintiff argued that the connection fees were not legitimate regulatory fees, but were taxes that the city could not lawfully impose. (6)

In Dunedin, the Florida Supreme Court accepted the concept that new development may be required to pay for its "fair share" of any additional regulatory costs that it creates, rejecting the claim that connection fees are unlawful taxes, per se. Reasoning against a windfall for existing property owners, the Florida Supreme Court cautioned, however, that the connection charges would be considered illegal taxes if they had "no relationship to and [were] greatly in excess of the costs of the regulation which [were] supposed to justify their collection." Thus, the Dunedin case teaches that local governments must operate within the following parameters when imposing a fee on new development:

* The money collected must be used to meet the costs of expanding the public facility.

* Only users who are benefited from the expansion should be responsible for the costs of expansion.

* To the extent fees are collected from new users, those users are not required to finance replacing public facilities, but only for the additional capacity their uses require. (7)

The Dunedin case involved the most common type of impact fee--those based on the amount of public infrastructure that the new development will consume. These so-called "consumption based fees" are calculated by determining the "value of the public infrastructure consumed per unit of land use." (8) The other type of impact fee is known as an "improvement based" fee. Improvement based fees are usually based on a set of improvement projects that the local government has set forth in its long-range capital growth plans. New developments are charged their proportionate share of the costs of those projects. (9) A third approach is to require a developer to actually construct the additional infrastructure required to serve the new development.

All of these approaches share some common characteristics. In particular, the local government must always establish a level of service standard for each facet of infrastructure that it finances with impact fees, such as police, fire, transportation, wastewater treatment services, etc. This required level of service is then applied to both new and existing development. If the level of service standard is lower than current service levels, then a deficiency exists in that service, and as ruled in Dunedin, new development cannot be charged fees to make up for existing deficiencies. Each new development can only be charged for accommodating level of service deficiencies that are the result of that particular development. (10)

The "Dual Rational Nexus" Test

Since Dunedin, a two-pronged test had developed under Florida law that all local governments must satisfy to lawfully impose an impact fee or development exaction. More specifically, local governments must demonstrate 1) a rational nexus between proposed development and the need for additional capital facilities for which the fee or exaction is imposed; and 2) a rational nexus between the improvement/ expenditure of funds collected or exaction and the benefits accruing to the subject property. (11) This is known as the "dual rational nexus" test. (12)

While Dunedin marked the critical differences between impact fees and taxes, the foundation for...