A recent 5-to-4 U.S. Supreme Court decision in Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586 (2013), broadens property owners’ rights to challenge land use decisions on the grounds of inverse condemnation (or regulatory takings), but it may also make governmental officials more circumspect in their negotiations and communications with applicants in an effort to avoid a lawsuit.
To understand Koontz, one must generally understand two earlier U.S. Supreme Court decisions upon which Koontz expands -- Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994). In those cases, the Supreme Court held that government agencies cannot condition permit approvals on the dedication of land unless (1) there is an essential nexus between the condition and a legitimate state interest, and (2) the condition is roughly proportional (i.e., related in nature and extent) to the impacts of the development. These holdings are collectively referred to as the “nexus” and “rough proportionality” tests.
In both Nollan and Dolan, the Supreme Court struck down the conditions at issue. In Nollan, the Court held that the Coastal Commission’s requirement that the landowner dedicate a lateral access easement along the beach lacked any nexus to the legitimate state interest of offsetting view blockage to the beach that would result from the landowner’s proposed larger home. 483 U.S. at 839. Similarly, in Dolan, the Court held that conditions imposed on the expansion of a hardware store requiring dedication of land for a flood control easement and bike path were not roughly proportional to the project’s impacts on flooding and traffic. 512 U.S. at 394-395.
Koontz expands on the nexus and rough proportionality tests by holding that a governmental demand for property from a land use applicant must satisfy the tests, even where the permit is denied, and even where the property demanded is money, as opposed to land. 133 S.Ct. at 2603.
In Koontz, Coy Koontz, Sr. attempted to obtain permits to develop a section of his property located in the St. Johns River Water Management District, which is part of the Florida wetlands. Id. at 2591-2592. Koontz offered to mitigate the environmental effects of the proposed development by deeding to the District a conservation easement on approximately three-quarters of his property. Id. at 2592-2593. The District rejected this proposal, informing Koontz that it would deny his permit application unless he agreed to either deed to the District a larger conservation easement or improve District-owned wetlands several miles away. Id. at 2593. Koontz found the District’s demands excessive and sued. Id. In holding that the nexus and rough proportionality tests apply even where a permit is denied, and even where money is demanded, the Supreme Court did not rule on the merits that the District’s actions violated these tests. Id. at 2597-2598. Rather, the Court remanded the case to the Florida court to make this determination. Id.
Koontz, Nollan and Dolan showcase efforts by the Supreme Court to prevent governmental bodies from going “too far” in imposing development regulations and mitigations. The nexus and rough proportionality rules limit governmental overreach by attempting to reconcile “two realities of the permitting process.” Id. at 2594. First, land use applicants are likely vulnerable to coercion due to the government’s broad power and discretion to deny permits. Id. Second, many proposed land use projects threaten to impose public costs, like traffic congestion, that dedications of property can offset. Id. at 2595. Under Nollan, Dolan, and now Koontz, the government may require permit applicants to mitigate the impacts of a proposed development, “but it may not leverage its legitimate interest in mitigation to pursue governmental ends that lack an essential nexus and rough proportionality to those impacts.” Id.
Koontz’s holding that the nexus and rough proportionality rules apply even where a permit is denied is new to California. This holding was uncontroversial -- with all nine justices in agreement -- and it makes sense. Any contrary result would permit governments to circumvent Nollan and Dolan by making demands for property conditions precedent to permit approval. Id. at 2595. For instance, if a government ordered that a permit is “approved if” a landowner turns over property, such an order would be subject to Nollan and Dolan. Id. Absent Koontz, however, an identical order providing that a permit is “denied until” an owner turns over property might not have been subject to heightened scrutiny under Nollan and Dolan. Id. at 2595-2596.
While rhetorically sound, this holding may prove problematic in practice. For instance, Koontz does not make clear how the unconstitutional denial must be documented. As a result, it is uncertain whether it must be part of a formal motion, findings or some other documentation.
It is also unclear whether the nexus and rough proportionality tests will apply to preliminary discussions. Often, proposed development impacts are uncertain and difficult to measure, and government agencies and applicants address the potential impacts through ongoing negotiations. Koontz may cause government officials to be more circumspect and subtle in negotiating permitting issues, or officials may resist negotiating directly with developers whatsoever. Ironically, the Court’s effort to protect developers from overreaching government may inadvertently result in less flexibility in public-private relations and prevent developers from reaching creative solutions with public agencies to enable new projects.
Koontz’s second holding – which applies the nexus and rough proportionality tests to the demand of money – will likely be less monumental for Californians, as for almost two decades Ehrlich v. City of Culver City, 12 Cal.4th 854 (1996), has recognized that monetary exactions may be subject to heightened scrutiny under Nollan and Dolan. Local governments impose myriad fees, however, and it remains to be seen precisely what fees will be subject to heightened scrutiny under Koontz.
For instance, although Koontz specifically holds that taxes are not “takings” subject to Nollan and Dolan, there are problems inherent to determining whether a government is imposing monetary “exactions” or taxes. 133 S.Ct. at 2601. Koontz fails to provide guidance as to whether a given fee would be subject to heightened scrutiny as an exaction or whether it would be exempt as a tax. Perhaps courts will turn to Ehrlich for guidance, as in that case the California Supreme Court only applied the nexus and rough proportionality tests to the demand for payment of an ad hoc fee, since such fees implicate the same concerns of arbitrary treatment and extortionate motives as do dedications of land. 12 Cal.4th at 866-69. Further guidance may be sought in Ocean Harbor House Homeowners Association v. California Coastal Commission, 163 Cal.App.4th 215, 237 (2008), wherein the court had “no difficulty” concluding that a fee paid in exchange for a permit to build a seawall was roughly proportional to the resulting recreational loss, given in-depth studies relied on by the Coastal Commission in connection with this issue.