Chapter 5 - § 5.6 • CASE LAW ON EXACTIONS AND IMPACT FEES

• Jurisdiction: Colorado

§ 5.6 • CASE LAW ON EXACTIONS AND IMPACT FEES

Landowners and developers sometimes resort to the courts when they object to exactions and impact fees imposed by local governments as a condition of development approval. The majority of objections that reach the courts involve claims that the exaction or impact fee: (1) is beyond the police power of local governments; (2) is the result of an invalid delegation of police powers; (3) is actually an ad valorem tax, and must therefore comply with the statutes governing uniform taxation among landowners; or (4) is not adequately related to the impacts of the proposed development.

While Colorado courts have often concluded that local governments have sufficient authority to impose exactions and impact fees,³⁴ not all impact fee programs survive judicial scrutiny. In 1996, for example, the Colorado Supreme Court determined that statutory counties do not have the authority to impose impact fees for school purposes in excess of the land dedication requirements (or fees-in-lieu of dedication) imposed at the time of subdivision.³⁵ There are no similar restrictions for statutory cities and towns. In 2000, the Colorado Supreme Court determined that a requirement that the developer provide affordable housing as a condition of development was an impermissible rent control prohibited by C.R.S. § 38-12-301.³⁶ In the course of reaching its decision, the court determined that rent control is an area of "mixed state and local concern" but that the local government's affordable housing fee provision was unavoidably inconsistent with the state's anti-rent-control statute and was therefore invalid.

§ 5.6.1—The Police Power and the Nexus Requirement for Exactions

The U.S. Supreme Court has, in Nollan v. California Coastal Commission and Dolan v. City of Tigard, emphasized that there must be a rational connection between the impact created by development and the exaction imposed on a private property owner.³⁷ First, there must be an essential nexus between a legitimate state interest sought to be achieved and the exaction imposed. Second, there must be a rational relationship between the scope and nature of the exaction and the burden or problem to be remedied by the exaction. For example, if an exaction is imposed on the grounds that new development creates more traffic and congestion, the exaction must help relieve the impact of more traffic and congestion created by that particular development.

While some of the leading U.S. Supreme Court cases on regulatory takings concern individualized requirements for dedication of land, in Koontz v. St. Johns River Water Management District, the Court confirmed that a demand for cash or for cash-in-lieu of a land exaction also requires an essential nexus and rational relationship between the required payment and the development impact to be remedied.³⁸ It is still unclear whether this principle will be applied only to individualized exactions of cash, or will also be applied to formula-based cash exactions.

In addition, while the U.S. Supreme Court's landmark Nollan and Dolan cases involved exaction conditions attached to land use approvals, in the Koontz case the Supreme Court determined that liability similar to regulatory takings liability could also apply to attempted exactions that lead to project denials. Citing the doctrine of "unconstitutional conditions," the Court noted that proposed local government conditions on land developments may be invalidated if they fail the Nollan and Dolan tests even if the requested permit or approval is denied (rather than conditionally approved). Unfortunately, the Court did not indicate what level of discussions about potential exactions may occur between an applicant and a land use approval authority before the failure to agree on those exactions might lead to liability.

Colorado case law has generally acknowledged the need for a rational nexus between the perceived harm and the government exaction. For instance, the Colorado Supreme Court has upheld a local government decision to condition a rezoning on compliance with site plan regulations as a valid exercise of the police power, so long as the exactions are reasonably conceived.³⁹

The Colorado Supreme Court has also upheld a local government decision to condition a church gymnasium building permit on dedication of land for a street right-of-way and funding of street and sidewalk improvements near the gymnasium, on the grounds that the general police power authorizes reasonable exactions to protect public safety.⁴⁰ Other Colorado decisions have recognized the need for a reasonable relationship between the exaction imposed and the harm to be alleviated.⁴¹

Where a required exaction goes beyond the development impacts caused by the applicant and confers a general public benefit, however, it is subject to constitutional challenge. In a 1977 case, the Colorado Supreme Court invalidated a condition on plat approval requiring that the developer advance or guarantee payment of $282,000 in front-end money for the construction of a major drainage channel that would benefit many other landowners.⁴² In spite of the local government's general home rule authority to regulate land use and explicit ordinance authority to collect funds for construction of drainage facilities as a condition of plat approval, the court overturned the exaction as not reasonably related to the burden created by the development and therefore beyond the city's ordinance authority.

§ 5.6.2—The Police Power and the Reasonably Related Standard for Impact Fees

In 1999, the U.S. Supreme Court refused to apply the Dolan rough proportionality standard to a situation where a local government had refused to approve a development plan for a piece of private property that the city felt should remain undeveloped. In City of Monterey v. Del Monte Dunes at Monterey, Ltd.,⁴³ the Court held that the rough proportionality test did not extend beyond the special context of exactions, and more specifically, beyond land use decisions conditioning approval of development on the dedication of property to public use.

While the U.S. Supreme Court was deciding Del Monte Dunes, Colorado's General Assembly was codifying the rough proportionality test, and distinguishing exactions from...