Making Room: Why Inclusionary Zoning Is Permissible Under Washington's Tax Preemption Statute and Takings Framework

• Publication year: 2021

MAKING ROOM: WHY INCLUSIONARY ZONING IS PERMISSIBLE UNDER WASHINGTON'S TAX PREEMPTION STATUTE AND TAKINGS FRAMEWORK

Josephine L. Ennis

Abstract: Inclusionary zoning ordinances, which typically require developers to set aside a percentage of new residential units for low and moderate income households, are a popular mechanism for ensuring the development of affordable housing in many communities. Washington State jurisdictions have been slow to introduce inclusionary zoning-particularly mandatory set-asides-perhaps because of the legal battles they would face. The Washington State Supreme Court previously relied on RCW 82.02.020 (the "tax preemption statute") to invalidate a low-income housing ordin2nce in San Telmo Associates v. City of Seattle (fn1) and in R/L Associates, Inc. v. City of Seattle.(fn2) Washington courts have also relied on a unique and complex takings analysis to invalidate low-income housing and manufactured housing laws on grounds that they constituted a "taking" of private property or a violation of substantive due process under the U.S. Constitution, or in some cases, under the Washington State Constitution. This Comment argues that inclusionary zoning is authorized by RCW 36.70A.540,(fn3) the Affordable Housing Incentive Programs Act, which expressly amended the tax preemption statute and permits both voluntary and mandatory inclusionary zoning programs. This Comment explores the differences between the federal and Washington takings analyses and argues that the Washington State Supreme Court should abandon its unique tests in favor of the federal approach as articulated in Lingle v. Chevron U.S.A., Inc.(fn4) Finally, this Comment explains why mandatory set-asides are constitutional under both federal and Washington takings law.

INTRODUCTION

Nationwide there is an acute shortage of affordable housing.(fn5) A number of jurisdictions have responded to the problem by enacting inclusionary zoning ordinances, which require developers to set aside a percentage of housing units in new residential developments for low-income households.(fn6) The two most popular inclusionary zoning models are: (1) mandatory set-aside programs, in which a minimum percentage of units in new residential developments must be offered at affordable rates; and (2) voluntary incentive zoning programs, where developers are rewarded with extra density allowances (or other incentives) when they include affordable housing in developments.(fn7) Many believe that inclusionary zoning programs are especially helpful for creating mixed-income neighborhoods in areas where rapid growth may drive out existing low-income tenants.(fn8)

Washington jurisdictions have been reluctant to adopt affordable housing programs, perhaps due to a number of successful legal challenges by developers.(fn9) However, in 2006, the Washington State Legislature responded to the pressing housing needs of the state and passed legislation authorizing cities and counties to adopt "affordable housing incentive programs."(fn10) Under the Affordable Housing Incentive Program Act (AHIPA), local governments may incentivize low-income housing development by offering density bonuses, height and bulk bonuses, fee waivers or exemptions, parking reductions, expedited permitting, or other incentives.(fn11) As of May 2012, at least three Washington communities have adopted mandatory set-asides,(fn12) and another nine have adopted some form of voluntary incentive zoning program.(fn13)

The City of Seattle enacted its own voluntary incentive zoning program in 2008,(fn14) but because incentive zoning has produced far fewer affordable units than hoped for, housing advocates have called for a mandatory program that applies to all new residential developments.(fn15) In negotiations over the rezone of the rapidly developing South Lake Union neighborhood, Seattle City Council members have explored the idea of revising the City's incentive zoning policy to produce more affordable housing.(fn16) If the City of Seattle adopts a mandatory set-aside program, it is very likely to face a legal challenge from the local real estate community.(fn17) This Comment reviews the legal framework that a Washington court would use when considering such a challenge and argues that mandatory set-asides are permissible on both statutory and constitutional grounds.

Washington courts have relied on RCW 82.02.020(fn18) (the "tax preemption statute") to strike down land set-aside mandates and previous low-income housing ordinances promulgated by county and city governments.(fn19) The tax preemption statute prohibits local governments from imposing certain types of development conditions or charges on landowners.(fn20) Because Washington courts have expressed a preference for invalidating housing ordinances under RCW 82.02.020 rather than on constitutional grounds,(fn21) the tax preemption statute is the logical starting point for a court considering the validity of a mandatory set-aside ordinance in Washington. Part I of this Comment discusses how RCW 82.02.020 has been used to invalidate previous ordinances and also introduces the AHIPA,(fn22) which explicitly amended the tax preemption statute to allow for "affordable housing incentive programs."(fn23) Part II argues that AHIPA authorizes both mandatory and optional inclusionary zoning programs. It further argues that because AHIPA amended RCW 82.02.020, a mandatory set-aside program that otherwise conforms to AHIPA is statutorily permissible in Washington.

In addition to a tax preemption challenge, a mandatory set-aside program may be challenged on both state and federal constitutional grounds. Nationally, inclusionary zoning ordinances have been attacked as unconstitutional takings, or as violations of due process, with divergent results in state courts.(fn24) Federal courts have yet to engage in a rigorous and comprehensive review of inclusionary zoning,(fn25) although some have applied elements of the takings analysis to inclusionary zoning policies.(fn26) Because a plaintiff in Washington could raise a federal takings claim to challenge mandatory set-asides, Part III of this Comment reviews the current state of federal takings law and briefly explores how courts nationwide have applied federal takings law to inclusionary zoning challenges. Additionally, in order to contrast Washington's approach, Part III describes how the U.S. Supreme Court has abandoned its substantive due process approach in the land use context.

The Washington State Supreme Court has provided heightened protections to landowners by engaging in an idiosyncratic takings analysis based on the Washington State Constitution(fn27) and a unique application of federal takings law.(fn28) For this reason, an inclusionary zoning ordinance in Washington may be subject to even greater scrutiny than elsewhere in the country.(fn29) Part IV of this Comment provides an overview of Washington's takings jurisprudence, while Part V discusses the ongoing application of substantive due process law to land use claims in Washington. Part VI argues that such an ordinance can survive a takings challenge under the federal takings analysis so long as the program requirements are not overly burdensome to landowners and still allow developers a reasonable return on their investment. Additionally, mandatory set-asides satisfy the development exactions criteria of Nollan v. California Coastal Commission(fn30) and Dolan v. City of Tigard(fn31) so long as the implementing jurisdiction provides proper evidence linking the construction of new residential development to the need for additional low-income housing units. Finally, Part VII argues that a mandatory set-aside ordinance should pass the takings and substantive due process protections of Washington's constitutional framework. However, this Comment further argues that the Washington State Supreme Court should abandon its unique analysis-particularly its reliance on substantive due process-in favor of the federal takings analysis articulated by the U.S. Supreme Court in Lingle v. Chevron U.S.A., Inc.(fn32)

I. WASHINGTON COURTS HAVE RELIED ON WASHINGTON'S TAX PREEMPTION STATUTE TO INVALIDATE HOUSING PRESERVATION AND LAND SET-ASIDE ORDINANCES

RCW 82.02.020 protects developers from making payments as a condition for development unless those payments are directly related to impacts of the development or are otherwise authorized by the statute.(fn33) In San Telmo Associates v. City of Seattle,(fn34) and in R/L Associates, Inc. v. City of Seattle,(fn35) the Washington State Supreme Court invalidated a low-income housing ordinance on the basis that the ordinance constituted an impermissible tax.(fn36) Subsequently, Washington courts have adopted a strict interpretation of the tax preemption statute and have invalidated even indirect charges on developments when the charges do not explicitly fall within one of RCW 82.02.020's exceptions.(fn37) As the cases below highlight, without an explicit amendment to RCW 82.02.020, an inclusionary zoning ordinance would be vulnerable to a tax preemption challenge.(fn38) However, in 2006, the drafters of the Affordable Housing Incentives Program Act (AHIPA) explicitly amended RCW 82.02.020 to accommodate "incentive zoning" programs.(fn39) As discussed further in Part II, whether mandatory set-asides are permissible under RCW 82.02.020 rests largely on the question of whether AHIPA authorizes mandatory...