Legal Update: What The Crystal Ball Says About Koontz

by Miller Starr Regalia
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As you may have heard, on June 25, 2013, the U.S. Supreme Court released its decision in Koontz v. St. John’s River Water Management District 570 U.S. ___, 133 S.Ct. 2586 (2013).  Koontz has been hailed by property rights advocates as a major victory for property owners, and lamented by others as the end of collaboration between real estate developers and permitting agencies.  The impact of the case will not be clear for several years, but at this point it seems like there is more thunder than lightning. 

Coy Koontz owned an undeveloped 14.9 acre tract of Florida land.  The property was located in a designated wetland area.  Koontz sought permits from respondent St. John’s River Water Management District (“District”) to develop a 3.7 acre portion of his property.  He offered to mitigate the environmental impact of the development by providing the District with a conservation easement over approximately 11 acres of the land.  The District considered the 11-acre conservation easement to be inadequate.  It stated that it would approve the project only if Koontz agreed to either: (1) Reduce the size of the development to one acre and provide the District with the conservation easement over the remaining 13.9 acres; or (2)  Deed the 11 acre conservation easement to the District and also agree to pay for off-site improvements to District-owned land located several miles away.  Koontz rejected these proposed alternatives and sued.

The Supreme Court held:  (1) A development condition must meet the nexus and rough proportionality requirements even if the permit is denied; and (2) a demand for a monetary exaction must meet the same constitutional standards as a land dedication requirement.

EXPECT GREATER USE OF DEVELOPMENT AGREEMENTS

The case arose from the relatively common discussions between a property owner and  permitting agency regarding conditions to be imposed.  The majority of the justices in Koontz treated the alternatives described by the District as demands.  Their analysis was based on the assumption that the requests for dedication of additional conservation easement area, or payment of a monetary exaction were, in essence, take it or leave it development requirements.  The dissent regarded the suggested options as merely part of a negotiating process.  But all nine justices agreed with the proposition that refusing to grant a development permit unless a property owner agreed to an unconstitutional condition was no different from granting the development permit on the condition that the over-reaching government demand was later satisfied. 

In practice, expect cities and counties to make clear in discussing potential conditions that the discussion is exploratory only, that no demands are being made, and that only the council or governing board can set conditions. In this regard, agencies will seek to discuss potential conditions in the context of the negotiation of a development agreement. 

A development agreement requires, by definition, negotiation and agreement between the parties.  Both parties are making concessions that would not otherwise be required.  It is hard to see how a suggestion made by a public agency as part of negotiating a development agreement could be construed as a demand that would invoke a Koontz analogy, absent extraordinary circumstances.  As long as the process is voluntary, it would seem that negotiations of potential development conditions in the context of a development agreement would eliminate the risk that a proposal by a city would be deemed an improper demand.  As a result, expect cities and counties to attempt to negotiate development agreements on a more frequent basis.

ARE DEVELOPMENT IMPACT FEES NOW SUBJECT TO HEIGHTENED SCRUTINY?

The second proposition decided by the Court was more controversial.  The Court held that monetary exactions must satisfy the same “essential nexus” and “rough proportionality” standards as government demands for dedications of property.  The majority held that whether a property owner is required to dedicate land, or make an in lieu monetary payment of the same value, the impacts are the same.  In California, however, in lieu fees and similar monetary exactions calculated for and imposed on a specific development project have been analyzed under the strict constitutional standards for many years.  The Court’s specific holding, based on its facts, does not appear to create any significant change in California. 

The real question is whether this new heightened constitutional scrutiny will apply to development impact fees.  The Mitigation Fee Act, Gov’t Code §66000 et seq. requires that a local agency seeking to impose a fee as a condition of approval of a development project must determine, among other things, that there is a “reasonable relationship” between the fee’s use and the type of development on which the fee is imposed and between the amount of the fee and the cost of the public facility attributable to the development. 

Courts have held that the reasonable relationship standard of the Mitigation Fee Act differs from the heightened constitutional scrutiny required of project specific exactions.  Development impact fees applied to a broad class of properties have been judged on a lesser standard, and when in doubt, courts have deferred to the legislative body adopting the fee.  This may now change.

As with the monetary demand in Koontz, development impact fees apply to a specific, identified property interest and require the owner to make a specified payment as a condition of proceeding with development.  The impact fees may have been adopted as a result of an impact fee analysis which generally meets the “reasonable relationship” standard, but when applied to a specific project, the fees may be excessive, i.e. not “roughly proportional” to the specific project’s impacts. 

Although Koontz applicability to impact fees will not be known for some time, if a development impact fee looks like an individualized assessment on a particular piece of property, or if it seems excessive compared to the impact of a particular project, it is more likely to be required to pass the heightened constitutional requirements. 

CONCLUSION

So, does Koontz really change much for real estate developers in California?  A little, but not as much as proponents have claimed.  It means that cities and counties will have to be more careful about what they ask for and how they ask for it.  Lawsuits challenging impact fees may be considered by the courts using the stricter constitutional standards, which will make some agencies leery about being too aggressive in setting impact fees.  But for most development in California, the project will still need approval from the city council or agency governing board, and that approval is still discretionary. 

QUESTIONS

A more detailed discussion of Koontz will appear in the September Miller & Starr Newsalert.  If you have questions about how the Koontz case will affect you, or about other land use, eminent domain or takings issues, please contact the author.

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