The Evolution of Real Estate Development Exactions in Utah
| Publication year | 1990 |
| Pages | 11 |
August, 1990
Michael J. Mazuran, J.
In an effort to fund the capital needs for infrastructure, counties, cities and towns throughout the nation are requiring development exactions from real estate developers. Development exactions of several kinds have been widely used by local governments throughout Utah to provide funds for roads, water supplies, sewer systems and parks. For the most part, these exactions have proved successful as a means of providing infrastructure and community facilities necessitated by development.
For purposes of this discussion, development exactions may be defined as contributions to a governmental entity imposed as a condition precedent to approving the developer's project. Usually, exactions are imposed prior to the issuance of a building permit or zoning/subdivision approval. For many years, local governments have required the dedication of land for both on-site improvements and off-site improvements such as roads, sidewalks, curb and gutter, water and sewer easements. In recent years, local governments have also required the developer to dedicate land for parks and other purposes or pay a fee-in-lieu of such land dedications. Local governments have also adopted impact fees to pay for infrastructure needed as a result of new development.
In the last decade, local governments throughout Utah have been faced with two significant burdens: rising costs for capital improvements; and continuous and extensive growth. Local officials have attempted to be fair in allocating responsibility for new facilities between existing users and new development which necessitates these improvements. This has resulted in allocation of a portion of the costs of new infrastructure to the developers. To no one's surprise, the imposition of such exactions has not gone unchallenged. In Utah, as with other states, developers have attacked ordinances and regulations seeking to impose exactions. Appellate decisions in this area have generated a body of law that provides guidance to both developers and local governments regarding the proper use of exactions.
Since the late 1970s, a "rational nexus" test has been widely used by various state courts in scrutinizing the imposition of exactions. As already noted, Utah courts have been actively involved in this field in recent years.
In order to evaluate the validity of a development exaction, courts initially examine whether or not there is a legal justification for imposition of the exaction. Local governments must have authority to enact development exaction legislation. If the court determines that the local government is authorized to require the exaction, the court will then typically examine the reasonableness of that exaction and its relationship with the development to be charged.
An important case in Utah is Call v. City of West Jordan'.[1] In Call, the city had adopted an ordinance which required developers to donate to the city 7 percent of the land located within the developer's proposed subdivision, or to pay the equivalent of that value in cash to be used for flood control and/or park and recreation facilities. The developers challenged the validity of the ordinance, contending that the exaction was invalid because it was not within the city's granted powers; the land or money required was not for the benefit of the developer's subdivision but rather for the city as a whole; that the exaction was an attempt by the city to take the developer's property without paying just compensation; and, finally, that the exaction constituted an unlawfully imposed tax.
The Utah Supreme Court found that the ordinance in question was within the scope of the city's authority and responsibility to promote the health, safety, morals and general welfare of the community. In reaching this decision, the Court observed that to the extent development creates a need for services and facilities, it is both fair and essential that the developer be required to contribute to the costs of providing those services and facilities. The Supreme Court also indicated that the exaction need not solely benefit the individual development but could fairly redound to the benefit of the whole community. Finally, upon rehearing, the Court held that the city ordinance was not unconstitutional on its face but could not be applied without the developer being given the opportunity to present evidence to show that the exaction...
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