The Supreme Court Limits Local Government Permitting Authority; Developers Claim a Big Win
For the first time, the Court held that, when a local government asks for a “monetary exaction” before approving a land use permit application, it could be an illegal taking. Monetary exactions fund projects intended to mitigate the environmental impact of proposed developments. Now, local governments will have to prove that these exactions meet a heightened Constitutional standard.
Last month, the Supreme Court issued the latest in a series of decisions limiting the ability of local governments to regulate land use under the so-called “takings” clause of the Fifth Amendment. If its critics are to be believed, the decision, Koontz v. St. John River Water Mgmt. District (Slip Op. No. 11-1447), will have a major impact on local land-use permitting. More likely, it will only have some effect around the margins, especially where a state or local government agency is perceived to have overreached in its demands for mitigation.
The Facts: How a Requirement to either Reduce a Development’s Size or Pay Up Became a “Taking”
In this recent decision, the plaintiff, Coy Koontz, sought permits from St. John River Water Management District (District) to develop a portion of his land in Florida, which included wetlands. Under Florida law, Koontz was required to offset any environmental damage resulting from filling those wetlands. Koontz proposed to develop 3.7 acres of his property, with stormwater management structures, and place a restriction on the remaining 11+ acres. The District told Koontz his permit would be approved if he either reduced the size of his development to one acre (restricting the remaining 13.9 acres), or spent money on an off-site wetlands restoration project. Koontz refused to accede to either of those conditions, and the permit was denied. Koontz then sued on the grounds that the District’s denial of his permit, based on his refusal to pay money or restrict more of his land, was “an unreasonable exercise of the state’s police power constituting a taking without just compensation.”
Prior to Koontz, the Court had ruled in two decisions (known as the Nollan/Dolan line of cases) that the Fifth Amendment prohibited governments from requiring the relinquishment of a portion of an applicant’s property to mitigate the negative effects of development without demonstrating a “nexus” and “rough proportionality” between the government’s demand and the effects of the proposed land use. In the circumstances just described, of course, no such relinquishment of land was actually required; Mr. Koontz was given the alternative of providing off-site mitigation. Nonetheless, in a 5-4 decision, the Court extended the Nollan/Dolan rule to situations in which the local permitting authority has denied an application for permit to coerce either the relinquishment of land or the payment of money to mitigate the effects of the proposed use.
The Reasoning: Vulnerable Land-Use Permit Applicants
The majority of the Court based its decision on the proposition that “land-use permit applicants are especially vulnerable” to government coercion “because the government often has broad discretion to deny a permit that is worth far more than property it would like to take.” As a result, the Court held that both options raised by the District – reducing the size of development or paying for off-site wetlands mitigation – must satisfy the “nexus” and “rough proportionality” test of Nollan/Dolan, and remanded it to the Florida Supreme Court to apply that principle to the circumstances of Koontz’s case.
What makes the case groundbreaking is that this is the first time the Court has held that a “monetary exaction” associated with land use permit application could be held to constitute a taking. Now, local governments, which often impose monetary exactions to fund off-site projects in order to mitigate the impacts of the proposed developments, will have the burden to prove that their conditions meet this heightened constitutional standard.
The Upshot: Both Sides Should Negotiate Off-Site Mitigation Conditions with Koontz in Mind
Critics of the decision, including the dissent, forecast a sea change in local permitting as a result of Koontz. This prediction is, at best, premature. The Court expressed “no view on the merits of [Koontz’s] claim that [District’s] actions … failed to comply with the principles set forth in Nollan and Dolan.” The majority opinion emphasized that the monetary exaction in Koontz “operated on … an identified property interest,” meaning that it was demanded in order to allow the plaintiff to retain the use of land that the District otherwise wanted to restrict, and was therefore different from fees and other lawful charges. From that perspective, it is possible that lower courts will construe the decision pretty narrowly.
But Koontz certainly opens the door to a new argument that developers can use to fight back against what they perceive to be excessive demands for off-site mitigation, whether they include funds to construct replacement wetlands or to create affordable housing. And it should make government officials much more circumspect about the process of negotiating such conditions, especially about suggesting specific forms of mitigation that might be acceptable, as such suggestions that might later be construed as proposed “exactions” if the negotiations fail. Local boards are going to have to document more carefully why permit conditions requiring such mitigation are proportional to the harmful effects to be expected from the proposed development. If they don’t, Koontz may give the developer not just grounds for a state court appeal, but access to the federal courts under the “takings” clause.
About George: I specialize in Environmental Law, Litigation, and Municipal Law at Anderson & Kreiger.
About Nina: I specialize in Litigation and Municipal Law at Anderson & Kreiger. I serve as an editor of the ABA Section of Litigation’s Real Estate Litigation newsletter.