Theoretical tension and doctrinal discord: analyzing development impact fees as takings.

• Author: Kent, Michael B., Jr.

ABSTRACT

One of the lingering questions about the law of regulatory takings concerns the proper scope and application of the Supreme Court's exactions jurisprudence, known as the Nollan/Dolan test. A recurring issue in the case law is the extent to which the Nollan/Dolan framework applies to takings challenges brought against development impact fees. Judicial decisions on the issue split over two primary questions. First, there is a debate about whether Nollan/Dolan is limited to physical exactions or whether the test might also apply to monetary exactions as well. Second, there is a difference of opinion over whether Nollan/Dolan applies only to exactions imposed in an ad hoc, adjudicative manner or also to exactions that are more broadly-applicable and established legislatively. These questions are important, but the primary emphasis on them has diminished the focus on other issues that also require attention. In particular, there is a need to situate impact fees within the law of local government financing--that is, determining whether they operate as fees or taxes--because the answer to that question will influence the proper level of Takings Clause scrutiny to which they should be subjected. Only after wrestling with all of these issues can one move to the ultimate query of what analytical test is most appropriate.

This Article attempts to answer these questions, fit impact fees into the Court's current takings jurisprudence, propose a new rule of decision for impact fee cases, and demonstrate how that rule might apply to basic factual situations. In addition, this Article suggests several larger questions implicated by the impact fee problem that continue to require judicial and scholarly attention.

TABLE OF CONTENTS INTRODUCTION I. ANALYTICAL FRAMEWORKS FOR REGULATORY TAKINGS A. The Standard Analysis B. The Exactions Analysis C. Application to Impact Fees II. DEFINING "EXACTION" A. Relevant Supreme Court Decisions 1. Nollan v. California Coastal Commission 2. Dolan v. City of Tigard 3. Lingle v. Chevron U.S.A. Inc B. Only Physical Dedications? 1. Differences Between Land and Money 2. Similarities Between Physical and Monetary Exactions C. Only Adjudicative Decisions? III. CLASSIFYING IMPACT FEES A. Of Taxes and Takings B. Fees or Taxes? IV. ARTICULATING THE APPROPRIATE TEST A. Benefits of a Hybrid Approach B. Mechanics of a Hybrid Approach C. Applications of a Hybrid Approach 1. Scenario One--Both Factors Favor the Government 2. Scenario Two---Both Factors Favor the Challenger 3. Scenario Three--One Factor Favors Each Side CONCLUSION INTRODUCTION

One of the lingering questions about the law of regulatory takings is the proper scope and application of the Supreme Court's exactions jurisprudence. Developed in Nollan v. California Coastal Commission (1) and Dolan v. City of Tigard, (2) and unanimously reaffirmed in Lingle v. Chevron U.S.A. Inc., (3) the analytical framework for exaction cases applies a form of heightened scrutiny to evaluate whether the challenged exaction constitutes a taking of private property. (4) Although much has been written on this framework by both lower courts (5) and scholars, (6) the full parameters of the framework remain uncertain. Indeed, several members of the Supreme Court have recognized the existence of issues that require the Court's further attention. (7) Among those issues is whether--and if so, how--the Nollan/Dolan standards should apply to takings challenges brought against development impact fees.

Impact fees are generally defined as one-time charges assessed against new development projects to help finance the cost of public improvements necessitated by those projects. (8) The fees normally are charged early in the regulatory process as a condition of development approval. (9) Scholars agree that impact fees evolved from the same type of exactions that were at issue in Nollan and Dolan-regulatory approval conditioned on physical dedication of land to public use. (10) Impact fees present a much more flexible financing option, however, because they need not be tied to the specific site under development in the same way as a physical dedication. (11) Whereas a dedication requirement may restrict a government from acting outside the geographical proximity of the proposed development project, impact fees can be applied more easily to improving off-site, system-wide infrastructure. (12) This feature renders impact fees more advantageous to the government, whose primary purpose in imposing exactions is to shift the cost of public improvements to the developer. (13) At the same time, "[i]t is this detachment from the actual location of land development that makes impact fees so controversial and so often subject to legal attack." (14) It seems clear that the use of impact fees by local governments is on the rise. Measured by enabling legislation alone, in 2002 twenty-four states allowed impact fees, as compared to only three states in 1986. (15) A study published in 2000 by the General Accounting Office found that 59 percent of cities having more than 25,000 residents impose impact fees, as do 39 percent of counties in metropolitan areas. (16) These numbers support the conclusion "that impact fees are prevalent and that their use is growing." (17)

The amount of money charged for impact fees is also growing. A recent study shows that, between 2004 and 2008, the average nonutility impact fee per single family unit rose by 76 percent nationwide. (18) These numbers represent an average annual increase of approximately 15 percent over the four years in question, (19) which significantly outpaced the rate of construction cost inflation during the same period. (20) With this rate of growth, it is likely that legal challenges to impact fees also will increase.

Among these challenges, those based on the Takings Clause (21)--that is, assertions that impact fees amount to takings of private property without just compensation--have proved to be particularly bothersome analytically. The Supreme Court has not addressed the issue, but several of its pronouncements about regulatory takings generally, and exactions specifically, have fueled a nationwide debate on the matter. State courts in particular have produced a variety of ways to evaluate whether and when an impact fee amounts to a taking. (22)

The debate has principally focused on two subordinate inquiries. First, courts and commentators have questioned whether monetary payments qualify as exactions under the Nollan/Dolan framework or whether the test established in those decisions is limited to physical exactions only. (23) Second, assuming the Court's exactions framework might apply to payments of money, it is unsettled whether that framework applies only to payments imposed in an adjudicative, ad hoc manner or to broadly-applicable, legislatively-determined fees as well. (24)

These questions are important because their answers will help define the constitutional meaning of the term "exaction" for purposes of a takings analysis. Accordingly, these questions must be addressed in any evaluation of the impact fee problem. But the primary emphasis on these two questions has, to some degree, diminished other issues that must also be confronted.

Even assuming that some monetary payments might qualify as an exaction for purposes of Nollan/Dolan, it remains to be seen whether impact fees should be among them. Other types of monetary obligations might more easily be viewed as exactions. For example, an "in lieu" fee imposed as a direct alternative to a required physical dedication looks like an exaction because of its inextricable connection to the dedication itself. Impact fees, on the other hand, are not linked to a would-be dedication, and they share characteristics with other types of financing mechanisms that have been viewed as less offensive to the Takings Clause. Much of what renders the analysis of impact fees so difficult is the question of how to classify them. Should impact fees be viewed as land use regulations, or similar devices rooted in the government's police power, or are they levies justified under its taxing authority? Do the fees confer special benefits, prevent unique societal harms, or finance community-wide programs that inure to the advantage of society as a whole? To what extent should the infrastructure they help finance be viewed as a general obligation of local government and to what extent should it be laid specially at the feet of new development? Only after wrestling with these questions, as well as the two previously mentioned, can one move to the ultimate query of what analytical test is most appropriate.

This Article seeks to answer these questions, and, in the process, make a worthwhile contribution to the existing literature on regulatory takings. While much has been written on exactions generally, only a fraction of the previous scholarship specifically or extensively addresses the issue of impact fees. Among the literature that does address the problem of impact fees, there is a tendency to follow the courts in highlighting the physical/monetary and adjudicative/ legislative distinctions, thus arguing either for or against the application of an unaltered Nollan/Dolan test based on the degree to which those distinctions seem sound. (25) The need exists for a treatment that not only addresses these distinctions but also situates impact fees within the context of municipal financing and then works out a rule of decision that takes all of these issues into account.

I hope to satisfy that need in the following manner. Part I reviews the analytical frameworks established by the Supreme Court for evaluating regulatory takings challenges. Because these frameworks are firmly entrenched in the law of takings, (26) I assume their continued vitality despite any of their inherent possible problems. Accordingly, I also assume that these frameworks, in one form or another, will provide the basis...