WASHINGTON -- The Supreme Court handed landowners a major victory on Friday in a ruling that limits the ability of how far municipalities can go in forcing property owners to pay for public improvements.
The 5-to-4 decision against the Oregon city of Tigard held that state and local governments cannot exact impact fees or land from developers to support public benefits such as greenways unless the exaction is "roughly proportional" to the benefit.
The high court held in Dolan v. Tigard that the city's demand that a property owner dedicate land for public use as a condition for approval of an expansion permit violates the Constitution's Fifth Amendment. The amendment prohibits taking of property without just compensation.
The ruling is expected to expose municipalities to litigation or expanded regulatory proceedings, attorneys said. Carter Phillips of the Washington law firm Sidley & Austin said earlier this year, "A whole lot of jurisdictions have engaged in these [conditioning] practices for a long, long time."
Under the high court's "rough proportionality" standard, "federal, state, and local regulators will not be able to as easily get away with their extortionate demands of developers ... unless they do their homework" to ensure that their demands are reasonable in relation to the public benefit, said Paul Kamenar, executive legal director of the Washington Legal Foundation, a nonprofit public interest law and policy center.
Many local governments will be forced to incur added expense to meet this burden, and the development process will take longer, thereby delaying receipt of associated tax revenues, Kamenar said. In addition, if impact fees are found to be too high under the rough proportionality standard, regulators will be forced to seek needed revenue for public improvements from other sources, he said.
Pending permit applications will be affected by the ruling, as well as permit decisions in which developers reserve the right to challenge a fee or other exaction pending a decision in the Dolan case, Kamenar said.
It is unclear whether other completed permit proceedings can be reopened. "I am not sure how that is going to come out in the wash," Kamenar said.
According to the high court, "No precise mathematical calculation is required" to meet the proportionality standard, "but the city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development."
Writing for the majority, Chief Justice William Rehnquist said the court took the Dolan case to answer a question left open by a 1987 ruling as to the extent to which exactions imposed by a city must be connected to projected impacts of a proposed development.
The 1987 ruling in Nollan v. California Coastal Commission struck down a commission attempt to force property owners to let the public walk along their beachfront to satisfy the public interest of visual access to the ocean. The court found no connection between visual access from the roadway and the public easement and concluded the commission's plan was "out-and-out ... extortion."
But the court said such "gimmickry" is absent in the Dolan case, which involves plans by property owner Florence Dolan to expand her existing retail electric and plumbing supply store on a 1.67-acre lot in the central business district of Tigard.
The city said it would allow the expansion only if Dolan, whose property lies partly within a 100-year floodplain, dedicated 10%, or 3,600 square feet, of her property for use as a greenway and a bicycle and foot path.
Oregon courts ruled for the city, which had found that Dolan's proposed development would increase traffic congestion and cause more runoff into Fanno Creek, flowing through a corner of the lot and along its western boundary. The lower courts, including the Oregon Supreme Court, relied on the city's findings that the path and greenway would alleviate the traffic and storm drainage impacts of the commercial development.
But. the high court said the city failed to show a "reasonable relationship" between its exactions on the developer and the public benefits.
The city simply found that creation of a pathway "could" mitigate the increased traffic, and it did not show why a public greenway, rather than a private one, was required for flood control, the court said.
Rehnquist noted that in the absence of a clear federal precedent, some states such as New York have adopted "very generalized statements" about the necessary connection between impacts and exactions, while others such as Illinois have adopted an unnecessarily strict standard of direct proportionality.
The high court favored a middle ground adopted by numerous state courts, such as the Supreme Court of Nebraska, that require municipalities to show a reasonable relationship. "We think a term such as 'rough proportionality' best encapsulates what we hold to be the requirement of the Fifth Amendment," the court said.
The rough proportionality standard, expected to be known as the Nollan-Dolan standard, "may not be all that clear, but nevertheless it is one that is ascertainable by a majority of the state courts," Kamenar said.
Justice John Paul Stevens issued a dissent, saying that the public interest carries more weight than private interests when there is doubt about the magnitude of development impacts. Stevens was joined by justices Harry Blackmun and Ruth Bader Ginsburg.
Justice David Souter wrote a separate dissent disagreeing with the majority's decision to place the burden of producing evidence of a relationship between exactions and impacts on the municipalities.