§ 7.4 - Limitations

• Jurisdiction: Washington

§7.4 Limitations

Among the most complex and litigated aspects of the law of exactions and impact fees are the numerous statutory and constitutional limitations that apply to local government actions in this area. The following sections highlight the principal limitations on local government imposition of exactions and impact fees on developers of land.

(1) RCW82.02.020—Prohibiting certain taxes, fees, or charges on development

RCW 82.02.020, part of the "excise tax" title of the Revised Code of Washington, contains a number of operative provisions, some of which impose important limitations on local jurisdictions' ability to require exactions or impact fees for development projects. This provision begins with a general state preemption on the collection of certain taxes, including "retail sales and use taxes," and prohibits municipal subdivisions from imposing such taxes. It goes on to state a general rule against local governments' charging any direct or indirect tax, fee, or charge on development projects, but contains a number of exceptions to this prohibition.

It is important to note that "RCW 82.02.020 does not confer authority on municipalities to impose conditions on development or charge fees in the absence of independent authority permitting the imposition of conditions...." See Citizens' Alliance for Prop. Rights (CAPR) v. Sims, 145 Wn. App. 649, 664, 187 P.3d 786 (2008), review denied, 165 Wn.2d 1030 (2009). Thus, any analysis of the propriety of an exaction or impact fee should begin with the basis for the local jurisdiction's authority to impose these requirements. See §7.3, above. The second step of the analysis is to determine whether the government seeks to require a direct or indirect "tax, fee, or charge" that falls under RCW 82.02.020's general prohibition. The third and final step is to determine whether any of this statute's exceptions apply. As noted by the Washington Supreme Court, "RCW 82.02.020 requires strict compliance with its terms. A tax, fee, or charge...imposed on development is invalid unless it falls within one of the exceptions specified in the statute." Isla Verde Int'l Holdings, Inc. v. City of Camas, 146 Wn.2d 740, 755, 49 P.3d 867 (2002).

(a) General prohibition on development taxes, fees, or charges

The portion of RCW 82.02.020 most relevant to development exactions and impact fees contains the following general limitation:

Except as provided in RCW 63.34.440 and 82.02.050 through 82.02.090, no county, city, town, or other municipal corporation shall impose any tax, fee, or charge, either direct or indirect, on the construction or reconstruction of residential buildings, commercial buildings, industrial buildings, or on any other building or building space or appurtenance thereto, or on the development, subdivision, classification, or reclassification of land.

This prohibition on taxes, fees, and charges on development applies to local governments, not state agencies. See, e.g., Humbert/Birch Creek Constr. v. Walla Walla Cnty., 145 Wn. App. 185, 193, 185 P.3d 660 (2008) (holding that RCW 82.02.020 did not limit authority of state Department of Transportation to enter into voluntary agreements concerning land development).

Note: Courts have declined to apply the prohibition in RCW 82.02.020 to some state land use regulations that are administered by local governments. In Citizens for Rational Shoreline Planning (CRSP) v. Whatcom County, 172 Wn.2d 384, 258 P.3d 36 (2011), the Washington Supreme Court held that RCW 82.02.020's prohibition on taxes, fees, or charges on development did not apply to Whatcom County's shoreline master program (SMP) provisions requiring various buffers from shorelines and restricting the building area of nonconforming lots to no more than 2,500 square feet. The court analyzed the requirements of Washington's Shoreline Management Act, which requires local governments to adopt SMPs subject to final approval by the state's Department of Ecology (DOE). The court noted that the SMP process "is done in the shadow of DOE's control," and that DOE provides "stringent oversight authority and command over the final contents of any jurisdiction's SMP." CRSP, 258 P.3d at 41. The court concluded that "Whatcom County's SMP was not the product of local government, and therefore, is not subject to RCW 82.02.020." Id. The court thus held that the buffer zone and buildable area limits at issue in this case could not be challenged under RCW 82.02.020. It remains to be seen whether this holding will be extended to other local planning actions in which there is significant state involvement, although the Court of Appeals in CRSP distinguished the earlier CAPR case, CAPR v. Sims, 145 Wn. App. at 661-62 in which it was held that clearing limits adopted under authority of the Growth Management Act (GMA) are subject to the statutory prohibition on taxes, fees, or charges. See Citizens for Rational Shoreline Planning, 155 Wn. App. 937, 949, 230 P.3d 1074 (2010) ("King County's adoption of the clearing limits challenged in Sims was solely a local government action, distinct from the circumstances herein where the county's adoption of its SMP was contingent upon obtaining approval from the state.") (discussing CAPR, 145 Wn App. at 653).

The breadth of this provision—i.e., that it applies to any "charge" on development or development approval, whether "direct" or "indirect"—brings almost any development exaction or impact fee under this general rule. See Isla Verde, 146 Wn.2d at 757 (holding that an open space set-aside requirement is considered a "tax, fee, or charge" on development, noting that "[t]he exclusionary language of the statute demonstrates that the prohibited charges are not limited to monetary charges"); CAPR, 145 Wn. App. at 661-62 (ordinance setting clearing limits as percentage of lot area considered a "tax, fee, or charge" under RCW 82.02.020). Thus, as discussed below, the statute's many exceptions control the allowable scope of dedications and payments that local governments may require as a condition of development.

(b) Exceptions to the general prohibition of RCW 82.02.020

The following are the specific exceptions to the general prohibition against charges for development activities. These appear roughly in the order in which they appear in the statute.

Certain relocation assistance programs. Relocation assistance payments pursuant to the Washington Condominium Act, Chapter 64.34 RCW, are expressly excluded from the general prohibition in RCW 82.02.020. See RCW 64.34.440(6)(e) (relocation assistance to certain tenants of converted condominium units may be required). This statute establishes express requirements for these relocation assistance programs.

"[R]elocation assistance to tenants under RCW 59.18.440 and 59.18.450" is also excluded from the general prohibition on charges under RCW 82.02.020. With these provisions, the legislature authorized local governments to require relocation assistance for low-income tenants in certain cases. See RCW 59.18.440(1).

GMA impact fees. GMA impact fees are expressly excluded from the reach of the general prohibition on charges for land development activities. See RCW 82.02.020 ("Except as provided in...[RCW] 82.02.050 through 82.02.090... "); see also RCW 82.02.050-090 (GMA impact fee provisions). The statutory authorization for GMA impact fees, and the permissible scope of these fees, is discussed in §7.3(3), above.

Dedications "reasonably necessary" as a result of development. RCW 82.02.020, by its terms, "does not preclude dedications of land or easements within [a] proposed development or plat which the county, city, town, or other municipal corporation can demonstrate are reasonably necessary as a direct result of the proposed development or plat to which the dedication of land or easement is to apply." RCW 82.02.020. The governmental entity requiring the dedication has the burden to prove that the condition is reasonably necessary as a direct result of the proposed development. Id.; see, e.g., Isla Verde, 146 Wn.2d at 755-56.

The aptly-titled Benchmark case, which came before the Division II Court of Appeals and the Washington Supreme Court, is an oft-cited example of courts' application of both the constitutional and statutory limits on exactions. In this case, Battle Ground had required the developer of a 20-acre subdivision to make half-street improvements to a street adjoining the development even though traffic studies concluded that the traffic increase on the street where the city required the improvements would be minimal. See Benchmark Land Co. v. City of Battle Ground, 94 Wn. App. 537, 541, 972 P.2d 944 (1999) (en banc). The Court of Appeals invalidated the condition on constitutional grounds, holding that the condition requiring off-site street improvements was not roughly proportional to the impact the proposed development would have on traffic, thereby failing the Nollan/Dolan standard for regulatory takings. Id. at 548; see also Dolan v. City of Tigard, 512 U.S. 374, 374, 114 S. Ct. 2309, 129 L. Ed. 2d 304 (1994); Nollan v. Cal. Coastal Comm'n, 483 U.S. 825, 825, 107 S. Ct. 3141, 97 L. Ed. 2d 677 (1987).

On appeal, the Washington Supreme Court affirmed the Court of Appeals decision, holding that the city's decision to require Benchmark to make street improvements as a condition of plat approval was not supported by substantial evidence; specifically, the city had not demonstrated that "[t]he required expenditure for street improvements" was "directly related to the traffic generated by the development." Benchmark, 146 Wn.2d at 695. In so doing, however, the Supreme Court based its holding on the specific limitations of RCW 82.02.020, thereby finding it unnecessary to reach the constitutional issue decided by the Court of Appeals. Id. at 694.

A review of the cases construing RCW 82.02.020 shows that the government must make a...