Exactions and burden distribution in takings law.

• Author: Ball, Carlos A.

ABSTRACT

In the last several decades, there has been a marked shift in local government financing away from the use of general revenue taxes and toward nontax revenue-raising devices such as exactions. This Article argues that the Supreme Court, in its exaction cases, missed a golden opportunity to slow this troubling trend toward the greater privatization of local government financing. In addition, it explains how the Court's exaction cases are inconsistent with the goal of burden distribution as reflected in the Court's takings jurisprudence. The Article proposes that the constitutional standard applied to exactions be reformulated to account explicitly for burden distribution. Such a reformulation will make exactions law more consistent with the purposes of the Takings Clause and will constitute an important first step in restoring a more sensible balance between tax and nontax revenue-raising devices.

TABLE OF CONTENTS INTRODUCTION I. EXACTIONS AND THE PRIVATIZATION OF LOCAL GOVERNMENT FUNDING A. A Brief (Critical) History of Nontax Revenue Raising by Local Governments B. The Court's Exaction Cases II. BURDEN DISTRIBUTION AND THE TAKINGS CLAUSE A. Burden Distribution in Takings Law 1. Categorical Cases a. Physical Appropriations b. Permanent Physical Occupations c. Deprivation of AU Economic Use 2. Noncategorical Cases B. The Constitutionality of Exactions and the Wide Distribution of Their Burdens 1. Nollan and Burden Distribution 2. Dolan and Burden Distribution 3. Reciprocity of Advantage in Nollan-Dolan and Burden Distribution III. CURRENT DISTINCTIONS IN EXACTIONS LAW A. Legislative Exactions vs. Adjudicative Exactions B. Land Exactions vs. Monetary Exactions IV. ACCOUNTING FOR BURDEN DISTRIBUTION IN EXACTIONS LAW A. Underinclusivity B. Reciprocity of Advantage and Rough Proportionality . CONCLUSION INTRODUCTION

The conditions that the government imposes when it approves development proposals put forward by property owners are known as exactions. In Nollan v. California Coastal Commission (1) and Dolan v. City of Tigard, (2) the Supreme Court applied a form of heightened scrutiny in assessing whether the exactions at issue constituted takings. In Nollan, the Court demanded an "essential nexus" between the goal pursued by the government through the imposition of the exaction and the nature of that exaction. (3) In Dolan, the Court required a "rough proportionality" between the impact of the owner's proposed development and the nature and extent of the exaction. (4) If either of those two requirements is not met, the challenged exaction will constitute a taking. (5)

Nollan and Dolan have received a great deal of attention from commentators, (6) who can be divided roughly into two camps. The first is enthusiastically supportive of the opinions. (7) The second is forcefully critical of the idea of applying heightened scrutiny to exactions because it leads to (1) underregulation, as governments require less of owners than what is constitutionally permitted to lessen the risk of litigation; (8) (2) overregulation, as governments have the incentive to deny development proposals altogether in order to avoid heightened scrutiny; (9) (3) inefficient outcomes, as heightened scrutiny impairs the ability of governments and developers to reach mutually beneficial arrangements; (10) and (4) the undermining of local democratic political processes. (11)

We have elsewhere added our voices to the anti-Nollan-Dolan chorus by noting the ways in which the opinions encourage the trend toward greater privatization of local government funding. (12) In applying heightened scrutiny and in concluding that the exactions in both Nollan and Dolan constituted takings, the Court seems to have hoped that its decisions would encourage governments to attain their policy objectives through the use of general tax revenues, rather than through exactions. (13) That hope has failed to materialize. Part of the explanation for this failure has little to do with the holdings and reasoning of the opinions and much to do with the powerful forces and incentives that have been encouraging local governments, for several decades now, to rely less on general revenues and more on nontax sources such as exactions. (14) But the opinions themselves have, perhaps unintentionally, provided incentives for further privatization of local government funding. (15)

Despite the criticisms of Nollan and Dolan that we and others have raised, we recognize that the constitutional framework established by those two cases is firmly entrenched and is unlikely to be overruled anytime soon. Furthermore, we recognize that exactions do provide governments with an opportunity to leverage their police powers in order to receive benefits from property owners without having to pay for them. (16) As a result, we explore in this Article how the Nollan-Dolan test can be reformed, rather than argue that it should be overruled. Our goal is twofold. First, we seek to preserve the protection that Nollan and Dolan established against governmental overreaching and leveraging. Second, because our primary concern is with the further narrowing of the sources of local government funding, (17) we have a particular interest in exploring how the Nollan-Dolan test can be modified to distribute the burdens that exactions impose on landowners more broadly.

We begin in Part I with an exploration of local governments' marked shift away from general tax revenues and toward a more privatized funding model that depends on marketlike consumer transactions for the provision of public infrastructure and services. (18) We also summarize the holdings and reasoning of the Court in Nollan and Dolan. (19) In Part II, we explore the prominent role that the degree of burden distribution has played in the Court's takings jurisprudence generally, and we criticize the Court for ignoring that factor in its Nollan-Dolan analysis. (20) As we explain, there is little in the Nollan-Dolan test that encourages governments to distribute exaction-related burdens widely, even though burden distribution is one of the primary goals of the Takings Clause. (21) The opinions, then, lead perversely to the further concentration, rather than to the further dissipation, of those burdens.

It is therefore ironic, but not surprising, that Nollan and Dolan, although invalidating the exactions at issue in those cases, spawned more, decidedly narrower exactions than the ones that came before them. (22) Local governments, seizing on language and distinctions made in the two opinions, have scrambled to find new ways to levy nontax charges that meet the Court's narrow essential nexus and rough proportionality tests. (23) To undo what we view as this problematic outcome, we urge in Part III that the Court extend Nollan and Dolan to all local government exactions, replacing the currently relevant distinctions between legislative and adjudicative exactions, and between land and monetary exactions, with an explicit analysis of the degree of burden distribution that accompanies exaction programs. (24)

At this early stage of the Article, it is important to acknowledge that our proposed expansion of the scope of Nollan-Dolan is likely to encounter doctrinal and systemic criticisms. The first objection, based on the reasoning of some courts, might be that Nollan-Dolan should be limited to dedicatory exactions--that is, exactions that require dedication of land, rather than payment of money--because monetary exactions are somehow more "benign" than dedicatory exactions. (25) We concur with courts that have rejected this argument; whether the requirement be that a landowner dedicate an acre of land or pay an amount of money that equals the cost of an acre of land, the ultimate impact on her is similar. (26) Second, some have justified restricting the purview of Nollan-Dolan to so-called "adjudicative" exactions, thus excluding more broadly adopted "legislative" exactions, because of the ways in which the former provide an opportunity for government leveraging or extortion of the landowner. (27) Again, we believe that the logic behind this distinction comes up short; governments can exercise leveraging or extortionate behavior against a class of individuals, as well as against a single individual. (28) Third, to those who would criticize the further constitutionalization of local government law, we recognize that an expanded Nollan-Dolan standard would bring a greater number of cases under the purview of federal constitutional law, and we do not lightly conclude that state law should take a back seat to its federal big brother. As a detailed review of state law cases has shown, however, state courts have generally ignored, reformulated, or abandoned state law limits on government nontax revenue-raising devices. (29) The creativity shown by local governments in devising narrow, targeted, nontax finance devices has far outstripped the willingness of state courts to restore principled, limited parameters for those devices. As a result, we conclude, somewhat reluctantly, that a meaningful federal standard is the only realistic option. (30)

We conclude the Article in Part IV with a discussion of the specific ways in which the degree of burden distribution can be incorporated into the constitutional analysis. Under our proposed modification of the Nollan-Dolan test, courts would have to inquire whether the exaction program in question is underinclusive, that is, whether owners who are similarly situated to the plaintiff owner are required to provide similar exactions. (31) We also propose that the benefits that accrue to owners from a wide distribution of the burden be accounted for in the application of Dolan's rough proportionality test. (32)

In the end, the choice is not between the current land use regulation landscape, where exactions are common, and a different landscape where exactions are never or infrequently imposed. Instead, the...