The Viability of Impact Fees After Nollan and Dolan

  Introduction

The Fifth Amendment of the United States Constitution provides "private property [shall not] be taken for public use, without just compensation."⁽¹⁾ Qualifying this seemingly absolute protection against uncompensated takings is the authority of local governments to regulate land within its borders.⁽²⁾ One method used by local governments to control the land within its borders is the development exaction.⁽³⁾

The term "development exaction" has different connotations. Some members of the development community, such as property owners and developers, agree with Blacks Law Dictionary, which defines an exaction as "[t]he wrongful act of an officer . . . in compelling payment of a fee . . . for his services, under the color of his official authority, where no payment is due."⁽⁴⁾ Black's Law Dictionary also refers the reader to see the definition of "extortion."⁽⁵⁾ A second definition, favored by courts and local planners, describes an exaction as "`contributions to a governmental entity imposed as a condition precedent to approving the developer's project.'"⁽⁶⁾

Property owners choosing to contest development exactions have several legal options.⁽⁷⁾ The most frequent challenge is whether the exaction is constitutional.⁽⁸⁾ The earliest exactions, in the form of land dedications, or money in lieu of land dedications, have been accepted by both courts and property owners and are rarely contested.⁽⁹⁾ A more recent trend in development exactions is the impact fee.⁽¹⁰⁾

An impact fee, a species of the development exaction, is a monetary charge imposed on the developer as a condition of project approval.⁽¹¹⁾ The money collected is used to fund capital projects in the community.⁽¹²⁾ Whether impact fees are "extortion" or constitutional methods of maintaining the community infrastructure, largely depends on the vantage point from which they are viewed.⁽¹³⁾ Although controversial, impact fees are becoming an increasingly popular method of generating revenue for municipalities.⁽¹⁴⁾ Two recent United States Supreme Court cases have unsettled the firm footing development exactions and impact fees gained in the landuse community.⁽¹⁵⁾ This Note suggests that all development exactions, including impact fees, must now pass a two-prong test.

The first prong, announced in Nollan v. California Coastal Commission,⁽¹⁶⁾ requires that an exaction imposed as a condition to building approval "`substantially advance[] legitimate state interests.'"⁽¹⁷⁾ The second prong, delivered in Dolan v. City of Tigard,⁽¹⁸⁾ requires that the exaction imposed be "roughly proportional" to the projected impact of the development.⁽¹⁹⁾

This Note suggests that these two prongs, which establish a heightened scrutiny for development exactions, should be used when evaluating impact fees. Part II examines the history of landuse regulations from zoning controls to impact fees.⁽²⁰⁾ Parts III.A-C traces the evolution of state court judicial review of these regulations, with emphasis on the varying standards used in different jurisdictions.⁽²¹⁾ Part III.D analyzes the two United States Supreme Court decisions establishing heightened scrutiny.⁽²²⁾ Part IV examines the effect that the Nollan and Dolan decisions will have on impact fees.⁽²³⁾ Part IV.A argues that these decisions should be used to evaluate impact fees.⁽²⁴⁾ Part IV.B suggests that heightened scrutiny is not only the appropriate standard, but also an overdue step by the judiciary to curb the police power of local governments.⁽²⁵⁾ Part IV.C examines how impact fees will survive the new standard.⁽²⁶⁾ Part V concludes by suggesting that if local land planners follow the mandate of the United States Supreme Court, property owners have achieved a victory that will curb police power abuses.⁽²⁷⁾

  Historical Development of Landuse Regulations and Exactions

Taking land for public benefit has been a common practice since colonial times.⁽²⁸⁾ In the eighteenth century, for example, local governments would frequently take undeveloped private lands to preserve or develop the area for public use.⁽²⁹⁾ The Continental Congress even formulated plans to provide for an orderly disposition of the western territories.⁽³⁰⁾

The legal foundation for present exaction requirements, however, are an extension of the zoning authority granted by states to each community.⁽³¹⁾ American municipalities possess a significant power in its ability to control and regulate growth within its borders.⁽³²⁾ The source of this power is the "`police power'" granted to states and local governments, which permits them to regulate for the health, safety and welfare of the residents of the community.⁽³³⁾

A.  Traditional Landuse Regulations and the Origin of Development Exactions

At the beginning of this century, local governments faced a rapid population growth and a boom in residential development.⁽³⁴⁾ Communities had achieved mixed success with developers voluntarily including essential services in their projects.⁽³⁵⁾ Authority to force developers to provide these services to future homeowners was needed.⁽³⁶⁾ This authority came in 1922 when the Department of Commerce published the Standard Planning Enabling Act,⁽³⁷⁾ which authorized communities to require developers to provide for essential residential services as a condition to plat approval.⁽³⁸⁾

The constitutionality of zoning regulations and the power of the community to enforce them was established in the landmark case, Village of Euclid v. Ambler Realty Company.⁽³⁹⁾ In Euclid, the United States Supreme Court announced it would defer to communities zoning plans, and not strike them as unconstitutional, unless the "provisions are clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare."⁽⁴⁰⁾ One year later, deferring to the knowledge of local officials, the Supreme Court reinforced the limited role of the judiciary in evaluating local zoning regulations.⁽⁴¹⁾

The message from the Court was clear: municipal zoning regulations were to be given great deference by the judiciary and left undisturbed if a rational basis existed for their enactment.⁽⁴²⁾ The broad authority granted to local governments, coupled with minimal judicial review, made a successful challenge to zoning regulations almost impossible.⁽⁴³⁾ If the regulation could not be supported by "public health, safety, or morals"⁽⁴⁴⁾ claims, there was always the "general welfare"⁽⁴⁵⁾ component to support the local government's authority under the police power. By 1954, the definition of public welfare under which communities could exercise their police powers, encompassed a panoply of judicially authorized motives.⁽⁴⁶⁾

While the constitutionality of zoning regulations and the authority of local governments to enact them was firmly established, they were not universally embraced.⁽⁴⁷⁾ Some scholars and members of the judiciary perceived the authority given to local planners as a legalized method of class segregation.⁽⁴⁸⁾ Despite any philosophical or social misgivings, however, the legal standard remained. Courts reviewing zoning regulations would defer to the authority and wisdom of the local governments.⁽⁴⁹⁾

B.  Land Dedications

As lower courts followed the United States Supreme Court directives by giving deference to zoning regulations,⁽⁵⁰⁾ the regulations imposed as a condition precedent to plat approval increased.⁽⁵¹⁾ By the late 1950s, requiring developers to return--or dedicate--a portion of their subdivision to the community for the construction of streets, sidewalks and sewer lines was commonplace.⁽⁵²⁾ In addition to returning land to the community, many towns required the developer to pay for and construct all necessary improvements on the dedicated land.⁽⁵³⁾

In evaluating these new requirements imposed upon developers, courts relied on previous United States Supreme Court decisions involving zoning regulations,⁽⁵⁴⁾ and generally accepted land exactions as both a valid exercise of the state police power, and as being related to the health, safety and general welfare of the community.⁽⁵⁵⁾ Frequently citing the language from Euclid, as the foundation for their reasoning, lower courts have held that non-arbitrary land dedication requirements would survive judicial scrutiny.⁽⁵⁶⁾

In Ayres v. City Council,⁽⁵⁷⁾ the California Supreme Court applied a similarly deferential standard when it approved an off-site land dedication.⁽⁵⁸⁾ In Ayres, the court was asked to evaluate exactions imposed upon a developer as a condition precedent to plat approval.⁽⁵⁹⁾ One of the conditions required the developer to dedicate a ten-foot strip of land abutting his development.⁽⁶⁰⁾ The land was to be used to widen an adjacent street.⁽⁶¹⁾ Ayres had several objections to this land dedication requirement.⁽⁶²⁾ He first contended that the city had been contemplating a widening of the street to accommodate preexisting traffic problems long before his development was proposed.⁽⁶³⁾ Second, he argued that because of the preexisting problems in the area, the city would benefit from his development more than the residents.⁽⁶⁴⁾ Finally, he asserted that the widening of the adjacent road was an attempt by the city to plan for future traffic problems, unrelated to his project.⁽⁶⁵⁾

The California Supreme Court dismissed these arguments, stating that each new subdivision adds new problems, and the fact that the city would also benefit from the exaction was "no defense."⁽⁶⁶⁾ Ayres also failed in his argument that the exaction was for future, rather than current traffic problems.⁽⁶⁷⁾ The court responded to this argument by stating, "[p]otential as well as present population factors . . . are appropriate for consideration."⁽⁶⁸⁾ The court found the conditions imposed on Ayres as reasonable and necessary to control the problems of a growing city.⁽⁶⁹⁾

The influence of the Euclid opinion, decided twenty years earlier, is apparent in the closing paragraph of the Ayres decision.⁽⁷⁰⁾ The Ayres court, paraphrasing the United States Supreme Courts language justifying zoning ordinances, wrote that the reasoning behind the Euclid decision was "also pertinent in this case."⁽⁷¹⁾ In deciding Ayres, the California court adopted the deferential test applied to zoning regulations of the 1920s and extended the application to development exactions.⁽⁷²⁾

Not all state courts accepted the parallels drawn between zoning and development exactions.⁽⁷³⁾ Nonetheless, local planners generally did not have to worry about the constitutionality of ordinances that at least had the outward appearance of legitimate regulations for the health, safety and welfare of the community.⁽⁷⁴⁾ As property owners were adjusting to land-dedication requirements, local governments, identifying the limited application of this type of exaction, began exploring an alternative.⁽⁷⁵⁾

C.  In Lieu Fees

While land dedication requirements used for improvements both within and outside the development project were generally given judicial approval as a reasonable exercise of police powers⁽⁷⁶⁾ and upheld against takings claims,⁽⁷⁷⁾ local governments were finding that these types of exactions were not universally applicable.⁽⁷⁸⁾ Many developers did not have a sufficient amount of property to be able to return a portion to the community.⁽⁷⁹⁾ To accommodate this situation, local governments began offering developers a choice of either donating land or paying a fee in lieu of the land exaction.⁽⁸⁰⁾ The money collected would then be pooled to purchase land on which to build the required service.⁽⁸¹⁾ Using the reasoning established by off-site land dedications, it was not required that the facility be for the exclusive use of that development.⁽⁸²⁾

Although "in lieu fees" have not been universally accepted in all jurisdictions,⁽⁸³⁾ courts frequently hold that in lieu fees are as equally valid as land dedication requirements.⁽⁸⁴⁾ Having achieved judicial approval for most in lieu fees as a constitutional alternative to land dedication requirements, local governments soon realized that the money collected from these fees was not sufficient to address the social and economic problems they were beginning to face.⁽⁸⁵⁾

D.  Impact Fees: The Next Generation of Development Exactions

Impact fees are one-time charges imposed on a developer as a condition to receiving a building permit.⁽⁸⁶⁾ Although outwardly similar to in lieu fees, impact fees differ in several important aspects.⁽⁸⁷⁾

First, impact fees may be levied against all new development, not just subdivision construction.⁽⁸⁸⁾ This allows local governments to collect fees from apartment and condominium projects, as well as from commercial development.⁽⁸⁹⁾ Second, the money collected from impact fees may be used to fund a greater variety of projects.⁽⁹⁰⁾

Through the first seventy years of this century, the prevailing attitude in most American communities was progrowth.⁽⁹¹⁾ This "progrowth coalition" was comprised of members from every business sector.⁽⁹²⁾ Each segment of the coalition saw an increase in the residential and commercial population as directly benefiting their interests.⁽⁹³⁾ More people living and working in the community created more jobs, more bank deposits, and more sales.⁽⁹⁴⁾ Members of this progrowth movement were also strong forces in the local landuse policy area, and local government officials were inclined to accede to the recommendations of this politically and economically influential group.⁽⁹⁵⁾

Community enthusiasm for continued growth began to wane in the 1970s.⁽⁹⁶⁾ Several factors merged during this period that forced communities to reevaluate their active support of continued development.⁽⁹⁷⁾ Among the most frequently cited factors were the cut-backs in federal funding given to local governments,⁽⁹⁸⁾ an already overburdened and crumbling infrastructure, and voter antipathy toward an increase in taxes.⁽⁹⁹⁾

Local governments were placed in an impossible situation. Without new facilities, there could be no growth.⁽¹⁰⁰⁾ Without new growth they were faced with "economic and fiscal stagnation."⁽¹⁰¹⁾ A new source of revenue was needed to compensate for the shrinking federal contribution and to help rebuild the community infrastructure. Having achieved success with land dedication and in lieu fees, as both constitutionally valid and viable solutions to the problems communities were facing, municipalities started imposing impact fees on developments as a condition to plan approval.⁽¹⁰²⁾

  Development of State Judicial Tests for Evaluating Development Exactions as "Takings"

The Fifth Amendment of the United States Constitution provides that "private property [shall not] be taken for public use without just compensation."⁽¹⁰³⁾ As demonstrated by judicially approved zoning and land-use regulations, however, this protection against governmental taking of property is qualified by the authority of a community to regulate land within its borders.⁽¹⁰⁴⁾ In 1922, the United States Supreme Court recognized that when local governments enact regulations that go beyond the proper exercise of its police power, a taking may have occurred.⁽¹⁰⁵⁾ Apart from easily identified situations, the United States Supreme Court has offered little guidance to lower courts in determining how far a landuse regulation may go before it becomes a taking.⁽¹⁰⁶⁾

Faced with Supreme Court silence on what constitutes a regulatory taking, state courts were left to develop their own standards and apply them to development exactions.⁽¹⁰⁷⁾ The unifying thread of the state tests was the need for some connection between the impact of the development on the community, and the amount of the exaction sought to be imposed.⁽¹⁰⁸⁾ The required degree of connection between the exaction and the development, however, varied widely between states.⁽¹⁰⁹⁾

A.  Reasonable Relationship Test

The reasonable relationship test requires that the needs of the new development merely bear some reasonable relationship to the exaction imposed.⁽¹¹⁰⁾ This test is considered the most deferential to local ordinances and has led to court approval of most exactions.⁽¹¹¹⁾

The origin of this test is found in the 1949 California case of Ayres v. City Council.⁽¹¹²⁾ The Ayres decision essentially extended deferential judicial review of zoning requirements to land dedications. It not only allowed the city to justify an exaction that was approved to help rectify a pre-existing problem, but also when the proposed development would receive only an indirect benefit.⁽¹¹³⁾

In 1971 the California Supreme Court applied the same deference to a similar land exaction requirement. In Associated Home Builders v. City of Walnut Creek,⁽¹¹⁴⁾ builders challenged a city ordinance that required a land dedication or payment in lieu of land before the subdivision would be approved.⁽¹¹⁵⁾ The developers relied on the same argument rejected by the court in Ayres, and achieved the same result.⁽¹¹⁶⁾ The court reaffirmed Ayres, restating that to be constitutional, a land dedication is not required to solely benefit the new development.⁽¹¹⁷⁾ The court also held that it was not necessary for the city to establish that the need for the new facilities was generated by the proposed development.⁽¹¹⁸⁾ The developers' argument that the ordinance was invalid because the need for the facilities was not directly attributable to that development, was rejected by the court.⁽¹¹⁹⁾ The court considered national studies that examined the problems of overpopulation and dwindling open space, and stated that it was the government's responsibility to provide recreational land and maintain open space.⁽¹²⁰⁾

Several other states have used the reasonable relationship test when evaluating exactions,⁽¹²¹⁾ but not all courts have given a community the latitude shown in California.⁽¹²²⁾ Generally, courts using this minimal standard will find the required nexus between the exaction and the proposed development. The Supreme Court of Minnesota stated that it was following the California approach in upholding the constitutionality of an ordinance that required a "reasonable portion" of land be returned to the city for public use.⁽¹²³⁾ In deciding the case, however, the court defined "reasonable portion" to mean land that the community would otherwise have to purchase "as a result of approval of the subdivision."⁽¹²⁴⁾ This definition seems at odds with the California cases that allow an exaction for future needs with no requirement that the proposed development be the sole factor in requiring the new service.

The California state courts have also applied the reasonable relation test when evaluating impact fees. In 1974, the Supreme Court of California reviewed a zoning ordinance that required any new developer to obtain a certificate from the school district stating that he or she had made appropriate accommodations for temporarily schooling new residents.⁽¹²⁵⁾ The court noted that it had approved land dedications which could be attributable to a development, and upheld the ordinance.⁽¹²⁶⁾ In 1985, the court again upheld, and the developer conceded, that a community may constitutionally impose school impact fees.⁽¹²⁷⁾

In Russ Building Partnership v. City of San Francisco,⁽¹²⁸⁾ the Court of Appeals upheld a San Francisco ordinance that required developers to pay a transit fee to mitigate the impact of new development on the public transportation system.⁽¹²⁹⁾ The developers challenged the fee as an unreasonable exaction because the amount owed was more than the cost of the benefit provided.⁽¹³⁰⁾ If the fee charged was not reasonable, it would be invalidated as a "special tax," and beyond the power of the city.⁽¹³¹⁾ In examining previous case law, the court noted that a distinguishing feature of a tax is its compulsory nature.⁽¹³²⁾ An exaction, on the other hand, was necessary only when the developer "voluntarily [chose] to create new space."⁽¹³³⁾ The court found no distinction between requiring a developer to provide for public improvements such as "sewers, parks and lights as a condition for the privilege of developing[,]" and requiring them to benefit the public for increased transit services.⁽¹³⁴⁾ The court also found that the amount of the fee required was reasonable based on studies commissioned by the city that showed the long-term impact of office space on the transit system.⁽¹³⁵⁾

B.  Specifically and Uniquely Attributable Test

In contrast to the deferential standard of the reasonable relationship test is the "specifically and uniquely attributable" requirement.⁽¹³⁶⁾ This strict standard requires that a constitutionally valid exaction must be "specifically and uniquely attributable" to the impact of the development.⁽¹³⁷⁾ This test is considered to favor developers because of the level of proof it requires.⁽¹³⁸⁾ Communities have a difficult time furnishing the court with information that can establish that the exaction is required solely and specifically as a result of the proposed development.⁽¹³⁹⁾

The phrase "specifically and uniquely attributable" was first used by the Illinois Supreme Court in Rosen v. Village of Downers Grove.⁽¹⁴⁰⁾ State-enabling legislation allowed local governments to form planning commissions.⁽¹⁴¹⁾ The commissions were authorized to "establish reasonable requirements" for public facilities as a precondition to plat approval.⁽¹⁴²⁾ With this grant of authority from the state, the village enacted an ordinance, a section of which was entitled "Educational Facilities."⁽¹⁴³⁾ This section of the ordinance required, as a condition precedent to plat approval, that the developer "meet the reasonable requirements of providing educational facilities for the proposed subdivision."⁽¹⁴⁴⁾ The ordinance allowed for either a land dedication, or "any additional means" if the village determined that the land dedication would "not reasonably meet the requirements."⁽¹⁴⁵⁾

In Rosen, the two plaintiffs had submitted plat proposals to the plan commission, and were given conditional approval.⁽¹⁴⁶⁾ The commission would give final approval after each plaintiff obtained a certificate of compliance from the boards of education.⁽¹⁴⁷⁾

Evaluating the condition imposed for plat approval, the Illinois Supreme Court stated that the control given to the plan commission was to provide for "orderly growth,"⁽¹⁴⁸⁾ but that any condition imposed on a developer must be "specifically and uniquely attributable to [the developer's] activity."⁽¹⁴⁹⁾ The state's grant of authority to local planning boards, however, did not mean that the boards could use conditional plat approval to "solve all of the problems which they [could] foresee."⁽¹⁵⁰⁾ The court also objected to the method used to determine the $325 figure, noting that the amount was determined by factors completely unrelated to the development.⁽¹⁵¹⁾ This objection, when added to the other concerns of the court, persuaded it to invalidate this section of the ordinance.⁽¹⁵²⁾

One year later, the Illinois Supreme Court applied the specifically and uniquely attributable standard to determine the validity of a land exaction. In Pioneer Trust and Savings Bank v. Village of Mount Prospect,⁽¹⁵³⁾ the court evaluated a development exaction sought to be imposed under the same state-enabling legislation that was relied on in Rosen.⁽¹⁵⁴⁾ The Mount Prospect ordinance specifically required that all developers return to the village a percentage of the land they would develop.⁽¹⁵⁵⁾ The plaintiff was required to give the village 6.7 acres of land on which the village would build a school.⁽¹⁵⁶⁾ He refused to give the village the land, and the village refused to approve the plat.⁽¹⁵⁷⁾

In reviewing the ordinance, the Illinois Supreme Court noted that while mandatory land dedication was not at issue in Rosen, that decision established the framework for determining which exactions could be reasonably demanded from a developer.⁽¹⁵⁸⁾ The court quoted, verbatim, the specifically and uniquely attributable language from the Rosen decision, and advised that if the demanded exaction was not specifically and uniquely attributable, it would "amount to a confiscation of property."⁽¹⁵⁹⁾

In Pioneer Trust, the court noted that the village schools were already overcrowded due to area wide development, and the addition of 250 more residential units would merely exacerbate a preexisting condition.⁽¹⁶⁰⁾ The Pioneer Trust court, acknowledging this problem and the need for additional schools, nonetheless held that to require the developer to dedicate that land, when his development was not specifically and uniquely the cause of the problem would violate the constitutional protection of "eminent domain without compensation."⁽¹⁶¹⁾

Only a few other states adopted the specifically and uniquely attributable standard when evaluating development exactions.⁽¹⁶²⁾ In 1961, a New Jersey court examined an ordinance that required land dedication as a condition precedent to plat approval.⁽¹⁶³⁾ The developer had received tentative approval for a subdivision plan, but in the intervening years, the zoning ordinance had changed and his proposal was no longer in compliance with acreage, sewage, and school facility requirements.⁽¹⁶⁴⁾ After the Planning Board rejected his project for the last time, the developer and town entered into a separate contract that granted him the right to build his project on the condition that he pay money to the Board of Education.⁽¹⁶⁵⁾ In addition to finding the contract illegal,⁽¹⁶⁶⁾ the court stated that the funding needed for public education should be borne by the public, and that the appropriate way to acquire the necessary funding was through increased taxes, not by agreeing to accept money from a developer in exchange for a building permit.⁽¹⁶⁷⁾

In 1970, the Rhode Island Supreme Court, after reviewing standards adopted from other jurisdictions, applied the specifically and uniquely attributable test from Pioneer Trust in the case of Ansuini v. City of Cranston.⁽¹⁶⁸⁾ At issue was a city ordinance requiring developers to return "at least seven percent" of their land to the city for "recreational purposes."⁽¹⁶⁹⁾ The court recognized the citys authority to impose conditions for which a developer is directly responsible.⁽¹⁷⁰⁾ But the court held that a fixed minimum percentage, dictated by an ordinance, would not always meet the specifically and uniquely attributable requirement.⁽¹⁷¹⁾

The Court of Appeals of Ohio applied the specifically and uniquely attributable standard when examining a land dedication requirement for an off-site road improvement in McKain v. Toledo City Plan Commission.⁽¹⁷²⁾ In addition to finding that the city had misapplied the statute,⁽¹⁷³⁾ the court extended its analysis to address the takings claim, raised by the developer.⁽¹⁷⁴⁾ The court held that a developer could be required to provide streets and pay for any other costs, but only if the needed roadway was specifically and uniquely attributable to his development.⁽¹⁷⁵⁾

The Supreme Court of New Hampshire, although never actually using the phrase "specifically and uniquely attributable," or citing to Pioneer Trust, has carefully scrutinized exactions that require land dedications. The decisions in two cases involving land exactions made clear the level of review the court would use.⁽¹⁷⁶⁾ The court deciding the first case, invalidated an ordinance because the condition sought to be rectified by the exaction was preexisting, and the community as a whole would reap the benefit rather than the development.⁽¹⁷⁷⁾ In clear language, the court warned communities that exactions would not be accorded deferential treatment when they resulted in a taking of private property for public use.⁽¹⁷⁸⁾ To the court's apparent annoyance, four years later it was faced with another land dedication requirement dispute.⁽¹⁷⁹⁾ This time, any ambiguity that may have left room for local planners to justify imposing land development exactions was dispelled. The court called the provisions of the ordinance sought to be imposed "an out-and-out plan of extortion,"⁽¹⁸⁰⁾ and ordered the city to return the land to the plaintiff.⁽¹⁸¹⁾

As illustrated by the previous cases, jurisdictions that adhere to the specifically and uniquely attributable standard rarely find a sufficient nexus between the need created by the proposed development, and the exaction imposed.⁽¹⁸²⁾

C.  Rational Relationship Test

The third test, developed by several states to determine the constitutionality of development exactions, is the rational relationship test. This test requires that the exaction imposed have a rational connection to the proposed development.⁽¹⁸³⁾ Courts applying this standard require that the exaction be proportional to the need created by the development.⁽¹⁸⁴⁾ Additionally, the development must receive some benefit, but not necessarily sole benefit, from the exaction.⁽¹⁸⁵⁾ The rational nexus test is considered an intermediate standard, and does not inherently favor either the developer or the municipality.⁽¹⁸⁶⁾

The Wisconsin Supreme Court first used this test in 1965, when evaluating an ordinance that authorized in-lieu payments.⁽¹⁸⁷⁾ In Jordan v. Menomonee Falls,⁽¹⁸⁸⁾ the developer elected to pay the in-lieu fee rather than dedicate a portion of his land.⁽¹⁸⁹⁾ The court first evaluated the constitutionality of the land dedication option, holding that it was "a valid exercise of police power if the evidence reasonably establishe[d] that the municipality [would] be required to provide more land for [facilities] . . . as a result of the subdivision."⁽¹⁹⁰⁾ The court then moved to the in-lieu fee option, and stated that the same reasoning would apply to this form of exaction.⁽¹⁹¹⁾ The village presented evidence of significant population growth in both the community and local school enrollment,⁽¹⁹²⁾ and expert testimony that established an optimal number of square feet required per family.⁽¹⁹³⁾ The court accepted this evidence as establishing the rational nexus required between the development and the exaction, and upheld the ordinance as a proper exercise of police power.⁽¹⁹⁴⁾

Other states followed Wisconsin's lead in rejecting the other tests as too extreme. In 1976, the Florida Supreme Court and the Florida District Court of Appeals applied the rational nexus test in two separate dedication cases. In Wald Corp. v. Metropolitan Dade County,⁽¹⁹⁵⁾ the Florida District Court of Appeals affirmed the trial court's grant of summary judgment for the county, but took the opportunity to review both the specifically and uniquely attributable, and reasonable relationship standard.⁽¹⁹⁶⁾ The reasonable relation test, it noted, allowed the community great flexibility in planning for future expansion,⁽¹⁹⁷⁾ and the low level of review "assure[d] the local legislature that [the] requirements [would] be upheld short of gross abuse."⁽¹⁹⁸⁾ The court observed that this may be appropriate for some areas where police power is questioned, but mandatory land exactions demanded higher scrutiny.⁽¹⁹⁹⁾ The court wanted a standard that would somewhat restrain "interference with private property,"⁽²⁰⁰⁾ and expressly rejected the Ayres rule.⁽²⁰¹⁾

The court also rejected the specifically and uniquely attributable standard established by the Illinois Supreme Court in Pioneer Trust.⁽²⁰²⁾ It believed that the community's attempt to impose the exaction would be held to an almost impossible standard of proof.⁽²⁰³⁾ The heightened standard undermined the ability of local governments to plan for future expansion, in contrast to the previous "presumption of validity" accorded most police power regulations.⁽²⁰⁴⁾

The court believed that the rational nexus test was flexible enough to allow planners to prepare for future expansion, but not merely a rubber stamp to whatever ordinance they may enact.⁽²⁰⁵⁾ This test would balance the needs of both parties.⁽²⁰⁶⁾ Developers' property rights would be weighed against the strain that their projects placed on the community.⁽²⁰⁷⁾ When the proper relationship could be demonstrated, the court found it "eminently reasonable" to require developers to submit to exactions.⁽²⁰⁸⁾ It was not fair to expect the entire community to bear the brunt of people who would not otherwise have moved into the area.⁽²⁰⁹⁾

The Supreme Court of Florida applied the same reasonable relationship test to an impact fee case decided during the same year. In Contractors and Builders Association v. City of Dunedin,⁽²¹⁰⁾ the court held that an impact fee charged to a developer would be upheld if the amount was proportional to the burden their development placed on the community, and was "reasonably anticipated."⁽²¹¹⁾ Although the ordinance was invalidated for other reasons,⁽²¹²⁾ the court had no difficulty in accepting the underlying theory of requiring developers to pay impact fees.⁽²¹³⁾

Impact fees were again challenged, and again upheld, in Hollywood, Inc. v. Broward County.⁽²¹⁴⁾ The ordinance allowed the developer to meet his obligation to the county in one of three ways. He could choose (1) a land dedication; (2) payment of a fee in lieu of a land dedication; or (3) payment of an impact fee.⁽²¹⁵⁾ The court referred to Admiral Development Corp. v. City of Maitland,⁽²¹⁶⁾ which held that an ordinance requiring land dedications for off-site improvements was beyond the communities' authority.⁽²¹⁷⁾ In reaching that decision, the Admiral Development court suggested that the municipality look to California cases where similar ordinances had been upheld.⁽²¹⁸⁾ In light of the rational relationship requirement between the exaction and impact of the development announced in Dunedin,⁽²¹⁹⁾ however, the Hollywood court acknowledged that the minimal standard used in California could no longer be used when evaluating development exactions in Florida.⁽²²⁰⁾ Reflecting the heightened scrutiny used by the courts in Contractors and Builders Ass'n v. City of Dunedin,⁽²²¹⁾ Wald Corp. v. Metropolitan Dade County,⁽²²²⁾ and Admiral Development Corp. v. City of Maitland,⁽²²³⁾ the court held that impact fees would be allowed only if a rational relationship could be shown between the exaction and the development.⁽²²⁴⁾

As demonstrated by these three tests, the issue of whether a development exaction was constitutional, or was a compensable taking varied from state to state.⁽²²⁵⁾ In addition to separate tests being used in different jurisdictions, courts would announce they were following one test, but actually would apply another.⁽²²⁶⁾ Some courts have used the terminology of the tests "interchangeably."⁽²²⁷⁾ Legal commentators also arrived at differing conclusions regarding which test was actually being applied in each jurisdiction.⁽²²⁸⁾ One commentator has suggested that none of these tests should be used to evaluate the latest trends in development exactions, because while the varying standards may have been workable to measure the constitutionality of traditional exactions of the 1940s, 1950s, and 1960s, they are not suitable for measuring the constitutionality of the newest trends in exactions.⁽²²⁹⁾

The United States Supreme Court has admitted that it has never been able to develop a test that is workable for all situations.⁽²³⁰⁾ Two recently decided cases, however, have advanced the Courts occasionally sporadic Fifth Amendment agenda.⁽²³¹⁾ In Nollan v. California Coastal Commission,⁽²³²⁾ and Dolan v. City of Tigard,⁽²³³⁾ the Court announced a two-prong test, as an attempt to both clarify its own confusing jurisprudence in this area and give state courts guidance for determining the correct standard of review.⁽²³⁴⁾

D.  The United States Supreme Courts Two-Prong Requirement

1.  Nollan: Substantially Advance a Legitimate State Interest

In 1987, the United States Supreme Court decided Nollan v. California Coastal Commission,⁽²³⁵⁾ and announced the first prong of a test to determine the constitutionality of landuse regulations. The Court held that there must be an "essential nexus" between a "legitimate state interest" and the condition sought to be imposed.⁽²³⁶⁾

The Nollans owned a beachfront lot on which stood a small bungalow.⁽²³⁷⁾ They proposed to tear down the existing structure and build a new house.⁽²³⁸⁾ Complying with California law, they applied for a building permit to the Coastal Commission.⁽²³⁹⁾ The commission granted the building permit, subject to the Nollans granting an easement across a portion of their land for public access to the beach.⁽²⁴⁰⁾ The Nollans appealed the condition, and the California Superior Court agreed with their argument that absent evidence to support the commissions contention, their new home would have a "direct adverse impact" on public access; the easement could not be imposed.⁽²⁴¹⁾ On remand, the commission heard further evidence and affirmed its earlier ruling requiring the easement as a condition for granting the building permit.⁽²⁴²⁾ The evidence confirmed their initial ruling that the Nollans new house would block the view of the ocean, and "contribut[e] to . . . `a "wall" of residential structures.'"⁽²⁴³⁾ This wall, they maintained, would "psychologically" prevent the public from realizing that a coastline was nearby.⁽²⁴⁴⁾ Again, the Nollans appealed to the California Superior Court, adding a takings claim to their challenge, and again the superior court ruled in their favor, finding that the record still did not establish that their new home would interfere with the publics perception that a beach was nearby.⁽²⁴⁵⁾ The superior court declined to address the takings claim.⁽²⁴⁶⁾ The commission appealed to the California Court of Appeals,⁽²⁴⁷⁾ which ruled in favor of the commission, finding there was "substantial evidence" to support the commission's decision that an easement was necessary to preserve the perception of a nearby beach.⁽²⁴⁸⁾ The appellate court also addressed their takings claim, holding that because the Nollan's were not deprived of all reasonable use, the claim failed.⁽²⁴⁹⁾

The United States Supreme Court accepted the case to decide the takings issue only.⁽²⁵⁰⁾ Reiterating the general rule of takings jurisprudence, the Court wrote that a landuse regulation would not constitute a taking if it "`substantially advances legitimate state interests'" and did not "`den[y] an owner economically viable use of his land[.]'"⁽²⁵¹⁾ The Court also reaffirmed that a "legitimate state interest" is a very broad term, allowing local governments to support the need for regulations with a wide range of objectives.⁽²⁵²⁾ In keeping with that latitude, the Court accepted, without deciding, the commissions stated purpose, that protecting the "public's ability to see the beach" was legitimate.⁽²⁵³⁾

The commission argued that instead of attaching a condition to the building permit to achieve their purpose, they could have imposed height or width restrictions on the actual construction of the house.⁽²⁵⁴⁾ In fact, they argued, the building permit could have been denied completely.⁽²⁵⁵⁾ The United States Supreme Court agreed with the commission, that a height and width restriction or a denial of a permit were a valid exercise of the state's police power.⁽²⁵⁶⁾ The Court, however, rejected the commissions attempt to obtain an easement "without payment of compensation" because there was not an essential nexus.⁽²⁵⁷⁾ The easement did nothing to achieve the purpose of protecting the publics awareness of the beach.⁽²⁵⁸⁾ There was no nexus between the substituted condition (the easement) and the original reason for which it was imposed (a wall of homes that would psychologically prevent people on the street side from being aware there was a beach to which they were allowed access).⁽²⁵⁹⁾ Having concluded that the condition imposed "utterly fail[ed]"⁽²⁶⁰⁾ to achieve the stated purpose, the Court held that the easement was nothing more than "`an out-and-out plan of extortion.'"⁽²⁶¹⁾

The United States Supreme Court held that to escape takings liability, there must be an essential nexus between the condition imposed and the legitimate state interest.⁽²⁶²⁾ Lower courts, both state and federal, however, were reluctant to accept this new standard.⁽²⁶³⁾ Some courts choose to read the Nollan decision narrowly, restricting the application only to landuse regulations which authorized a physical invasion.⁽²⁶⁴⁾ Other courts outwardly accepted the heightened scrutiny command of Nollan, but continued to evaluate the nexus between the stated purpose and condition imposed with great deference.⁽²⁶⁵⁾ The Ninth Circuit decided that Nollan had not changed the level of review.⁽²⁶⁶⁾ To successfully challenge a landuse regulation in some jurisdictions, property owners had to prove, as in Nollan, that there was essentially no nexus between the condition imposed, and the stated purpose.⁽²⁶⁷⁾

Whether the essential nexus requirement of Nollan was limited to facts identical to this case was a question with which lower courts struggled.⁽²⁶⁸⁾ Another question left unanswered by the Nollan Court, was the required degree of connection between the impact of the development and the condition sought to be imposed, when the proper nexus between the legitimate state purpose and the condition was established.⁽²⁶⁹⁾ Seven years after Nollan, the United States Supreme Court accepted a case to resolve that issue.⁽²⁷⁰⁾

2.  Dolan: Rough Proportionality Between Condition and

Development

In Dolan v. City of Tigard,⁽²⁷¹⁾ the United States Supreme Court held that when a proper nexus between the condition imposed and the states legitimate purpose is found, the state must then establish that there is a "rough proportionality" between the amount exacted and the impact of the proposed development.⁽²⁷²⁾

Florence Dolan owned a plumbing and electric supply store next to Fanno Creek in Tigard, Oregon.⁽²⁷³⁾ To remain competitive in the market, Mrs. Dolan submitted a plan to the city in which she proposed tearing down her existing store and replacing it with a larger retail facility.⁽²⁷⁴⁾ The city approved her application, but attached conditions to the building permit.⁽²⁷⁵⁾ First, the city required that she dedicate 7000 square feet of land adjacent to Fanno Creek to be used as part of a general plan to combat flooding problems in the area.⁽²⁷⁶⁾ In an effort to control traffic congestion in the downtown area, the city also required Mrs. Dolan to dedicate an additional fifteen-foot strip of land for future construction of a pedestrian and bicycle pathway.⁽²⁷⁷⁾ The two conditions required that Mrs. Dolan dedicate approximately ten percent of her total parcel to the city in exchange for a building permit.⁽²⁷⁸⁾

Mrs. Dolan challenged the exactions as a governmental taking without just compensation, arguing that the city had not met its burden under the heightened scrutiny standard announced in Nollan.⁽²⁷⁹⁾ The court of appeals rejected the argument that Nollan required heightened judicial inquiry, and upheld the exactions.⁽²⁸⁰⁾ Mrs. Dolan appealed to the Supreme Court of Oregon, which framed the issue as whether the city "has demonstrated the required relationship between the conditions that it attached to [Mrs. Dolans] proposed land use and the expected impacts of that land use."⁽²⁸¹⁾ The court held that the city had supplied sufficient support for the exactions, and agreed with the lower court that the decision in Nollan provided "guidance" for judicial review, but did not mandate heightened scrutiny of development exactions.⁽²⁸²⁾

The United States Supreme Court granted certiorari to Dolan, in an effort to clarify the Nollan holding and complete the analysis commenced within that decision.⁽²⁸³⁾ In Dolan, the Court was asked to determine the required degree of connection between the condition imposed and the projected impact of the development.⁽²⁸⁴⁾ Chief Justice Rehnquist, writing for the majority, further delineated the two-part test to be used for evaluating permit conditions.⁽²⁸⁵⁾ The first prong determines "whether the `essential nexus exists between the `legitimate state interest and the permit condition exacted by the city." ⁽²⁸⁶⁾Assuming an essential nexus is found, the second prong of the test is to "decide the required degree of connection between the exactions and the projected impact of the proposed development."⁽²⁸⁷⁾ The exaction imposed on the Nollans could not pass the first prong of the test, so the Court was not called on to determine the degree of connection required.⁽²⁸⁸⁾

Both conditions imposed on Mrs. Dolan satisfied the "essential nexus" requirement announced in Nollan.⁽²⁸⁹⁾ The state had a legitimate interest in controlling flooding problems and reducing traffic congestion in the downtown area.⁽²⁹⁰⁾ The proposed parking area would increase water runoff, and the store expansion would increase traffic in the area.⁽²⁹¹⁾ Unlike the exaction in Nollan, the land dedications required from Mrs. Dolan specifically addressed both of these problems.⁽²⁹²⁾

Having established there was an essential nexus between the permit condition and a legitimate state interest, the Court moved to the second prong--the required relationship between the permit condition, and the projected impact of the proposed development.⁽²⁹³⁾ The Court examined the three tests used by lower courts,⁽²⁹⁴⁾ and determined that the "rational relationship" standard, "adopted by a majority of the state courts" was constitutionally appropriate.⁽²⁹⁵⁾ The test does not require "precise mathematical calculation[s]" to establish the link between the exaction and the impact of the development, but "some sort of individualized determination" is required.⁽²⁹⁶⁾ The heightened connection between the exaction and the development "best encapsulates what we hold to be the requirement of the Fifth Amendment."⁽²⁹⁷⁾ The Court, however, thought the label "reasonable relationship" was semantically too similar to the term "`rational basis' which describes the minimal level of scrutiny under the Equal Protection Clause of the Fourteenth Amendment."⁽²⁹⁸⁾ To prevent confusion over the appropriate level of review, the Court renamed the standard "rough proportionality."⁽²⁹⁹⁾

Changing the presumption of constitutionality previously accorded landuse regulations, the burden of proving that the exaction imposed was roughly proportional to the projected impact of the proposed new development was placed on the city.⁽³⁰⁰⁾ Applying the standard to the exactions imposed on Mrs. Dolan, and examining the evidence presented by the city, the Court held that the city had failed to meet its burden on both exactions.⁽³⁰¹⁾ The dedication requirement for land to be used for a pathway was not justified by the citys determination that "the pathway `could offset some of the traffic demand . . . and lessen the increase in traffic congestion.'"<sup>(302)</sup> The exaction imposed for land to help control flooding problems in the area was based on "rather tentative findings that increased storm water flow from [the proposed development] `can only add to the public need to manage the [floodplain] for drainage purposes."⁽³⁰³⁾ The Court agreed with Tigards contention that additional paving of the parking lot would add to storm water runoff, but believed that the fifteen percent open-space requirement contained in the ordinance in addition to building prohibition on the land sufficiently addressed the problem.⁽³⁰⁴⁾ The Court refused to let the city take the additional step of requiring Mrs. Dolan to give the land to the city as a condition for a building permit.⁽³⁰⁵⁾ The Court found the exactions imposed survived the first prong of the analysis, that there was an essential nexus between the purpose and the exactions, but failed the second prong.⁽³⁰⁶⁾ The impact of Mrs. Dolans new store was not roughly proportional to the exactions imposed by the city.⁽³⁰⁷⁾

There were two separate dissents in Dolan.⁽³⁰⁸⁾ The sharpest, written by Justice Stevens, was critical of all aspects of the majority opinion.⁽³⁰⁹⁾ Justice Stevens maintained that the majoritys reliance on the state court cases used to support the "rough proportionality" standard was inappropriate, because the cited cases did not supply a foundation to support the new standard announced by the Court.⁽³¹⁰⁾ He further stressed that property owners are rewarded both directly and indirectly by a citys approval of building permits, even with conditions attached.⁽³¹¹⁾ Justice Stevens was particularly disturbed by the section of the majority opinion that required the governmental entity seeking to impose the exaction to prove that it was roughly proportional to the projected impact of the development.⁽³¹²⁾ Requiring the city to establish the constitutionality of the exaction, he believed, was analogous to the standard of judicial review used at the turn of the century for evaluating substantive Due Process claims.⁽³¹³⁾ He argued that this level of scrutiny was not appropriate, and had been "rejected decades ago" by the Supreme Court.⁽³¹⁴⁾ The majority responded to the criticism by noting that its position in Dolan is based on the Fifth Amendment, while the Stevens' dissent is based on a case which interpreted the Due Process Clause of the Fourteenth Amendment.⁽³¹⁵⁾ Chief Justice Rehnquist further distinguished zoning ordinances from development exactions.⁽³¹⁶⁾ The presumption of constitutionality remains intact for all encompassing zoning regulations, but individual permit conditions must be shown to be constitutional by the governmental body seeking to impose them.⁽³¹⁷⁾

Despite the sharply divided Court, Dolan advanced the test for regulatory takings analysis begun in Nollan.⁽³¹⁸⁾ Regulations imposed as conditions to building permit approval must pass a two-prong test.⁽³¹⁹⁾ Nollan requires an essential nexus between a legitimate state purpose and the condition imposed.⁽³²⁰⁾ If that is found, Dolan requires a rough proportionality between the exaction and the projected impact of the new development.⁽³²¹⁾

  Impact Fees and the Applicability of Nollan and Dolan

A.  Does the Heightened Scrutiny of Nollan/Dolan Apply to Impact Fees?

1.  Physical Invasion Should Not be a Prerequisite for the

Application of Heightened Scrutiny

This section of the Note examines whether the two-part test developed in Nollan and Dolan should be applied to impact fee regulations. The first part argues that heightened scrutiny should only be used for regulations authorizing physical invasion.⁽³²²⁾ The second part of this section maintains that this narrow reading is incorrect, and suggests three reasons why Nollan and Dolan are also applicable for impact fee regulations.⁽³²³⁾

a.  The Narrow Interpretation: Nollan/Dolan Does Not Apply to

Impact Fees

There is a disagreement among courts and commentators regarding whether the heightened scrutiny command of Nollan and Dolan is applicable to impact fees. One approach, followed by the Kansas Supreme Court, limits the decisions only to ordinances which authorize physical invasions.⁽³²⁴⁾ In McCarthy v. City of Leawood,⁽³²⁵⁾ the plaintiffs challenged an ordinance that conditioned building permits and plat approval on the payment of impact fees.⁽³²⁶⁾ The city projected that the amount collected from the impact fees would pay for approximately thirty percent of the total cost of the improvements.⁽³²⁷⁾ McCarthy argued that the fees were unconstitutional because the amount the city expected to collect from new developments was disproportionate to the proposed impact of the developments.⁽³²⁸⁾ In rejecting this argument, the Kansas Supreme Court found McCarthys reliance on Dolan inappropriate, writing "nothing in the [Dolan] opinion . . . would apply the same conclusion to [the city of Leawood] conditioning certain land uses on payment of a fee."⁽³²⁹⁾

Applying Dolans rough proportionality test only to exactions that authorize physical invasion or a transfer of property to the municipality, is an extension of the limited reading some courts gave Nollan, decided earlier. In Blue Jeans Equity West v. City and County of San Francisco,⁽³³⁰⁾ developers challenged an ordinance that required payment of traffic impact fees as a condition for a certificate of occupancy.⁽³³¹⁾ The court framed the issue as "whether the heightened scrutiny test alluded to in Nollan v. California Coastal Commission should be applied to San Franciscos Transit Impact Development Fee (TIDF) Ordinance."⁽³³²⁾ After reviewing the language in the Nollan opinion, the court held that the decision was limited to "possessory rather than regulatory takings cases."⁽³³³⁾ According to this reading of the Nollan opinion, regulations that did not authorize physical invasion by the public would not be subjected to heightened scrutiny.⁽³³⁴⁾ Several commentators support this limited reading of the two decisions.⁽³³⁵⁾

Language from both the Nollan and Dolan cases adds a measure of legitimacy to restricting heightened scrutiny to land dedication requirements. The Nollan Court noted, "[w]e are inclined to be particularly careful about the adjective where the actual conveyance of property is made a condition to the lifting of a land-use restriction."⁽³³⁶⁾ In Dolan, the Court stated "the conditions imposed were not simply a limitation on the use petitioner might make of her own parcel, but a requirement that she deed portions of the property to the city."⁽³³⁷⁾ Relying on these phrases, however, is an attempt to read the opinions in a vacuum.⁽³³⁸⁾

b.  Extending the Decisions: Nollan/Dolan Should Apply to

Impact Fees

Restricting these two decisions only to physical invasion or conveyance conditions is incorrect for several reasons.⁽³³⁹⁾ First, the United States Supreme Court vacated and remanded an impact fee case for reconsideration in light of Dolan.⁽³⁴⁰⁾ Second, the language relied upon to support limiting the application is contradicted by the Courts frequent references to "permit conditions" rather than specifically addressing land dedications.⁽³⁴¹⁾ Finally, the tone of Nollan and Dolan indicate the Courts attempt to reassert the protection of private property accorded by the Fifth Amendment.⁽³⁴²⁾

i.  The Ehrlich Remand

The day after Dolan was decided, the United States Supreme Court remanded an impact fee case "for further consideration in light of Dolan."⁽³⁴³⁾ Ehrlich v. City of Culver City⁽³⁴⁴⁾ involved only payment of impact fees, not land dedication requirements. From 1975-1988, Richard Ehrlich operated a private tennis and recreational club in Culver City.⁽³⁴⁵⁾ The club was not a financial success, so he shut down the entire facility in 1988 and applied for a permit to build thirty "deluxe townhomes."⁽³⁴⁶⁾ The city initially denied the permit because "the land-use restriction provided recreational facilities for the city."⁽³⁴⁷⁾ In 1989, the city reconsidered and approved the project, subject to the payment of certain fees.⁽³⁴⁸⁾ The most significant fee was a $280,000 mitigation fee to be paid to the city, to offset the loss of the recreational facility. Ehrlich, relying on Nollan, argued that the fee was an unconstitutional taking because there was no nexus between the fee and the impact of his development.⁽³⁴⁹⁾ The appellate court held that the fee was appropriate to help the city mitigate the loss of Ehrlichs private club, and "would in some measure allow the city to replace lost recreational facilities."⁽³⁵⁰⁾ The fact that the tennis club had been private, and for members only, was immaterial to the courts analysis.⁽³⁵¹⁾

The court did not require that the mitigation fee be used by the city to offset the potential impact of Ehrlichs proposed development, but accepted the citys rationale that the fee was justified as compensation "for the benefit conferred on the developer by the citys approval of the townhome project."⁽³⁵²⁾ Essentially, the court held that the mitigation fee was an appropriate charge to compensate the city for approving the conversion of land from recreational use to residential use, and no connection between the proposed development and the projected impact on the city was necessary.⁽³⁵³⁾

The city assessed a second fee against Ehrlich, which was a $33,220 in-lieu art fee.⁽³⁵⁴⁾ This fee, authorized by the citys Art in Public Places Program, required developer participation as a condition to project approval.⁽³⁵⁵⁾ Developers were allowed to "participate" in one of four ways; Ehrlich selected the in-lieu fee.⁽³⁵⁶⁾ The appellate court held that the art ordinance was neither an exaction nor an illegal permit condition, but rather was similar to ordinances requiring land dedications for parks.⁽³⁵⁷⁾ Parkland dedications were "valid permit conditions," even though the developer was generally offered only two alternatives for meeting their obligation.⁽³⁵⁸⁾ This ordinance offered four alternatives, one of which allowed the developer to retain legal ownership of the artwork.⁽³⁵⁹⁾ Because the choice of whether to give something of value to the city remained with the developer, the California Court of Appeals found no takings issue.⁽³⁶⁰⁾

By vacating this decision one day after deciding Dolan, with instructions to the lower court to reconsider their holding specifically in light of Dolan, the Supreme Court impliedly suggested that impact fees should be judicially evaluated by the same standards.⁽³⁶¹⁾ Several commentators are more direct in their analysis of the Ehrlich remand, arguing that the Supreme Court's remand clearly shows the Nollan and Dolan decisions should not be limited only to regulations that authorize physical invasion.⁽³⁶²⁾

In April, 1996, the Supreme Court of California delivered its interpretation of Nollan and Dolan and its applicability to impact fees.⁽³⁶³⁾ In a lengthy opinion, the California court specifically held that the Nollan/Dolan heightened scrutiny standard applies when determining the constitutionality of impact fees.⁽³⁶⁴⁾ It rejected Culver City's argument that the Nollan and Dolan standard be used only for dedications of property.⁽³⁶⁵⁾ The Ehrlich court placed limitations on the two decisions by holding that heightened scrutiny would only be appropriate in cases involving impact fees imposed "on an individual and discretionary basis."⁽³⁶⁶⁾ Fees that were prescribed by the legislature and imposed on a broad range of property owners "may indeed be subject to a lesser standard."⁽³⁶⁷⁾

In addition to commentators endorsing a broad application, several lower courts have accepted the premise that heightened scrutiny, mandated by Nollan and Dolan, is applicable to regulations that do not authorize physical invasion. The Illinois Supreme Court used both prongs of the test when evaluating a transportation impact fee statute. In Northern Illinois Home Builders Ass'n v. County of Du Page,⁽³⁶⁸⁾ the court first evaluated whether there was a nexus between the stated purpose and the exaction imposed.⁽³⁶⁹⁾ Finding that the statute easily met the first prong, the court next determined whether the required amount of money was proportional to the projected impact of the development.⁽³⁷⁰⁾ The court held that the ordinance failed the second prong, because the money collected was to be used "to fund all road improvements `needed to maintain a reasonable level of service,'" not improvements made necessary by the new development.⁽³⁷¹⁾ Other state courts, also accepting the premise that impact fees are subject to heightened scrutiny, have required the municipality to establish that the condition imposed is roughly proportional to the developers' project.⁽³⁷²⁾

ii.  Heightened Scrutiny Should Be Applied to All "Permit

Conditions"

A second reason supporting broader application of the Nollan/Dolan decisions is revealed by the language in the United States Supreme Court's opinions. There is little in either opinion that would support the assumption that substantially advancing a legitimate state purpose, with an exaction that is roughly proportional to the impact of the development, is a test to be used only for land dedications or exactions that authorize a physical invasion.⁽³⁷³⁾ In Nollan, the majority repeatedly refers to the easement as a "permit condition."⁽³⁷⁴⁾ In summarizing the extent to which government may regulate landuse, the Court wrote that "unless the permit condition serves the same governmental purpose as the development ban, the building restriction is not a valid regulation of land use but `an out-and-out plan of extortion."⁽³⁷⁵⁾ The "permit condition" imposed on the Nollans happened to be an easement, but the terminology used by the Court implies a broader application of the essential nexus requirement.

The Court continued using the phrase "permit condition" in Dolan.⁽³⁷⁶⁾ Recapping the first prong of the test articulated in Nollan, the Court wrote, "we must first determine whether the `essential nexus exists between the `legitimate state interest and the permit condition exacted by the city."⁽³⁷⁷⁾ Moving to the second part of the analysis, the court stated: "[O]ur analysis requires us to determine whether the degree of the exactions demanded by the citys permit conditions bear the required relationship to the projected impact of petitioners proposed development."⁽³⁷⁸⁾ Using the phrase "permit condition" rather than specifically identifying the exactions imposed on the landowners, suggests that the Court intends heightened scrutiny be used to evaluate the constitutionality of all exactions.⁽³⁷⁹⁾

iii.  Reasserting the Importance of the Fifth Amendment

Finally, the tone of both the Nollan and Dolan opinions demonstrated that the Court was attempting to strengthen Fifth Amendment takings jurisprudence, and a narrow reading of these two decisions appear to contradict that sentiment.⁽³⁸⁰⁾

Footnote three in Nollan clarifies that takings analyses are not to be evaluated under the same minimal level of scrutiny as equal protection or substantive due process claims.⁽³⁸¹⁾ Writing for the majority, Justice Scalia concluded that "[w]e view the Fifth Amendments Property Clause to be more than a pleading requirement."⁽³⁸²⁾

If Nollan alluded to the Supreme Courts resurrection of the Fifth Amendments Taking Clause, the opinion in Dolan left little doubt that the Court was attempting to give property owners the full measure of protection that the words promise.⁽³⁸³⁾ Justice Stevens' dissent suggested that the conditions placed on Mrs. Dolan were "a species of business regulation" and as such should be given "a strong presumption of constitutional validity."⁽³⁸⁴⁾ In response, Chief Justice Rehnquist rejected the idea that classifying the conditions "as a `business regulation'" would automatically elevate them to constitutional status.⁽³⁸⁵⁾ The opinion then examined several earlier decisions involving business related issues in which the court had found violations of the Bill of Rights.⁽³⁸⁶⁾ The Court could not have been more direct about restoring the power of the Fifth Amendment Takings Clause: "We see no reason why the Takings Clause of the Fifth Amendment, as much a part of the Bill of Rights as the First Amendment or Fourth Amendment, should be relegated to the status of a poor relation in these comparable circumstances."⁽³⁸⁷⁾

Having signaled to local government planners and lower courts that "permit conditions" should be subjected to heightened judicial scrutiny, while concurrently reasserting the importance of the Fifth Amendment, to read Nollan and Dolan narrowly would ignore both the wording and the spirit of the underlying sentiment.⁽³⁸⁸⁾

B.  Heightened Scrutiny is the Appropriate Standard for Judicial Review

Applying heightened scrutiny to all development exactions has been heralded by many landuse advocates as a long overdue step.⁽³⁸⁹⁾ Proponents offer variations of the same theme in support of this higher standard--it is time for the judiciary to step in and curtail the historically unchallenged police powers of local governments.⁽³⁹⁰⁾

Since 1922, the states' power to regulate for the health, safety and welfare of its citizens has expanded.⁽³⁹¹⁾ While these powers were expanding, the Supreme Court generally remained silent on when a landuse regulation goes so far as to become a taking of property without just compensation.⁽³⁹²⁾ This abdication in judicial oversight filtered down to lower federal and state courts.⁽³⁹³⁾ Property owners' rights often hinged on appealing to local landuse and planning boards; many times the boards that actually initiated the ordinance being challenged.⁽³⁹⁴⁾ Faced with little chance of success, developers were inclined to accept exactions imposed on them rather than pursue the issue in court.⁽³⁹⁵⁾ Thus, acceptance of imposed exactions was reflective of "the power of the local governments position, not the reasonableness of the exaction."⁽³⁹⁶⁾

The United States Supreme Court has acknowledged that "[o]ne of the principal purposes of the Takings Clause is `to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."⁽³⁹⁷⁾ Before the Nollan and Dolan decisions, however, many landowners considered this sentiment a hollow promise.⁽³⁹⁸⁾

The potential for abuse of the permit system is readily apparent.⁽³⁹⁹⁾ A property owner must deal with the local government in the area in which her land is located.⁽⁴⁰⁰⁾ In the absence of judicial oversight, the local governments decisions regarding development or expansion of the property may not be completely grounded in "constitutional considerations."⁽⁴⁰¹⁾ For many modern landowners a majority "of their (often modest) wealth [is] tied up in property."⁽⁴⁰²⁾ If they are denied a permit to develop or expand, or if the permit will only be granted for an arbitrarily set amount of money, the assurances of the Fifth Amendment will remain an illusory protection.⁽⁴⁰³⁾Only by tying the level of the exaction to the harm caused by the private project, or the benefit conferred on that project by government action, can these public abuses be curbed. The persistence and the power of government monopoly thus demand great scrutiny over the exercise of government powers, even when consent is obtained.⁽⁴⁰⁴⁾

The Takings Clause of the Fifth Amendment was included in the Bill of Rights to do more than just protect private property from illegal governmental seizure.⁽⁴⁰⁵⁾ "The Fifth Amendment is not about property or about commerce. It is about individuals; it is about fairness; and it is about freedom."⁽⁴⁰⁶⁾ By abdicating through silence and minimal review, courts have relegated the takings clause to insignificance.⁽⁴⁰⁷⁾ The recent steps taken by the Supreme Court, particularly with the Dolan decision, signal the Court's willingness to reestablish judicial authority as a means to control the states' police power.⁽⁴⁰⁸⁾

C.  How Impact Fees Can Survive Heightened Scrutiny

Predictions regarding the consequences of the Nollan and Dolan decisions varied. Predictably, supporters of the previous presumption that all landuse regulations were constitutional now suggest that heightened scrutiny will severely threaten a local governments ability to regulate land within their borders.⁽⁴⁰⁹⁾ On the other hand, private property rights activists viewed the two decisions as a judicial attempt at leveling the regulatory playing field.⁽⁴¹⁰⁾

Neither side suggests that the decisions signal the demise of exactions in general or impact fees in particular.⁽⁴¹¹⁾ The issue of how impact fees can survive heightened judicial scrutiny can best be analyzed by examining each component of the United States Supreme Courts two-prong test.⁽⁴¹²⁾

1.  The Nollan Standard: Substantially Advancing a Legitimate

State Interest

The first prong of the test should not prove a difficult standard for municipalities to achieve. This requirement simply reiterated the standard that has been used for almost twenty years.⁽⁴¹³⁾ As the Court states, "a broad range of governmental purposes and regulations satisfies [this] requirement[]."⁽⁴¹⁴⁾ The essential nexus required between the exaction and the state interest should not present local governments with an insurmountable hurdle in attempting to impose impact fees. Determining that the Coastal Commissions easement did not meet the nexus requirement, the Court pointedly noted that this "conclusion . . . is consistent with the approach taken by every other court . . . with the exception of the California state courts."⁽⁴¹⁵⁾ Relying on this language and the Courts apparent endorsement of every other jurisdictional approach, a municipality should have little difficulty moving to the second prong.

2.  The Dolan Standard: New Substantive and Procedural

Requirements

The second prong, enunciated in the Dolan decision, requires that the exaction imposed be roughly proportional to the projected impact of the development.⁽⁴¹⁶⁾ This standard can be broken down into two components: substantive and procedural.⁽⁴¹⁷⁾

a.  Substantive: The Amount of Proof

Local governments must now make individual determinations that the exaction imposed is proportionally attributable to the proposed development of the land.⁽⁴¹⁸⁾ Some attempt to quantify the impact of the project will be required.⁽⁴¹⁹⁾ An examination of existing state impact fee statutes reveals that the proportionality requirement has been codified in several states even before Dolan was decided.⁽⁴²⁰⁾

New Hampshires statute already requires that any impact fee "be a proportional share of . . . capital improvement costs . . . reasonably related to the capital needs created by the development."⁽⁴²¹⁾ Illinois' statute, which only authorizes impact fees for road improvements, also requires the assessed fee to be a "proportionate share of costs incurred by . . . local government."⁽⁴²²⁾ Californias enabling statute, on the other hand, simply requires "a reasonable relationship between the fees use and the type of development project on which the fee is imposed."⁽⁴²³⁾ If the United States Supreme Court's remand of Ehrlich is acknowledged as extending heightened scrutiny, the constitutionality of this section of California's enabling statute becomes problematic.⁽⁴²⁴⁾

Florida, a state without specific impact fee enabling legislation, has used impact fees extensively for over two decades.⁽⁴²⁵⁾ In Hollywood, Inc. v. Broward County,⁽⁴²⁶⁾ decided ten years before Dolan, the court held that "dedication or impact fee requirements [would be] permissible so long as they offset needs sufficiently attributable to the subdivision."⁽⁴²⁷⁾ The court further specified that there must be "a reasonable connection, or rational nexus, between the need for additional capital facilities and the growth in population generated by the subdivision."⁽⁴²⁸⁾ This requirement, almost identical to the United States Supreme Courts holding in Dolan, has been followed by the Florida courts for the last decade.⁽⁴²⁹⁾

Recent state court decisions, decided after Dolan, also offer some insight into what will be required. In Trimen Development Company v. King County,⁽⁴³⁰⁾ the court upheld the imposition of an impact fee that was to be used to buy additional park land, because it was supported by the citys "comprehensive assessment" detailing the need for additional park land.⁽⁴³¹⁾ On the other hand, municipalities attempting to impose impact fees that are not supported by at least some evidentiary justification will not succeed in court.⁽⁴³²⁾

Attention should be given not only to the amount of the fee, but also to the underlying need for the facility or service to which the fee will be applied.⁽⁴³³⁾ Essentially, municipalities attempting to impose impact fees cannot be in the business of selling approval of developments.⁽⁴³⁴⁾ Requiring the local government to offer proof that the impact fee assessed is roughly proportional to the development assures that that cannot occur.⁽⁴³⁵⁾ The United States Supreme Court impliedly authorized a degree of judicial discretion when courts evaluate the proportionality requirement of Dolan.⁽⁴³⁶⁾ Local planners must simply go beyond the bare statement that the impact fee is needed.⁽⁴³⁷⁾ Allowing local governments to exact land or money based on a lesser standard of proof does not afford the protection contained in the Fifth Amendment.⁽⁴³⁸⁾ Requiring communities to establish rough proportionality will discourage the situation addressed by the United States Supreme Court in Nollan: when generally valid landuse regulations are not held to standards enforced by the judiciary, there is the possibility that communities may exceed the power granted to them and simply try to obtain land or money "through gimmickry."⁽⁴³⁹⁾ As one commentator noted, the substantive requirements of "Dolan will have the greatest impact on those cities that do not plan."⁽⁴⁴⁰⁾

b.  Procedural: The Burden of Proof

The burden of proving that the exaction is roughly proportional to the projected impact of the development is now on the governmental body seeking to impose the permit condition.⁽⁴⁴¹⁾ Although shifting the burden from the property owner to the governmental body was greeted with some outrage,⁽⁴⁴²⁾ the reality appears less dramatic.⁽⁴⁴³⁾ Although specific enabling legislation is not required for local governments to have the authority to impose fees, many state statutes do address the issue of proof.⁽⁴⁴⁴⁾ For example in 1990, Georgia enacted legislation that requires any municipal or county government imposing impact fees to have "adopted a comprehensive plan containing . . . capital improvements."⁽⁴⁴⁵⁾ Arizonas statute authorizing counties to enact impact fee ordinances, which was enacted in 1990, goes even further.⁽⁴⁴⁶⁾ Not only must the county "conduct a needs assessment for the type of public facility . . . for which the development fee is to be assessed," the statute also mandates this plan be updated yearly.⁽⁴⁴⁷⁾

Since the mid-1970s, Florida, a state with a long history of judicially authorized impact fees⁽⁴⁴⁸⁾ has required the governmental body seeking to impose the fee to justify the charge with evidence that an exaction is needed.⁽⁴⁴⁹⁾ In Hollywood, Inc. v. Broward County,⁽⁴⁵⁰⁾ the court wrote, "the local government must demonstrate a reasonable connection . . . between the need for additional capital facilities" and the proposed development.⁽⁴⁵¹⁾ The court allowed the developer an opportunity to "refute the governments showing" connecting his project to the need for capital facilities, but the initial burden of proving that the impact fee was necessary was on the government.⁽⁴⁵²⁾

As these statutes and cases suggest, requiring the government to furnish evidence that the fee is necessary is neither revolutionary, nor should it be surprising.⁽⁴⁵³⁾ By having some area-wide plan, in which the proposed development is contained, furnishing sufficient proof should not prove an insurmountable obstacle to local governments.⁽⁴⁵⁴⁾

  Conclusion

With expanding populations, shrinking budgets, and an aging infrastructure, it is easy to understand why local governments have turned to impact fees.⁽⁴⁵⁵⁾ It is equally clear why, after decades of silence, the United States Supreme Court has finally focused its attention to the issue of regulatory takings--excessive conditions placed on land for the privilege of using it have exceeded the limits of legitimate police power.⁽⁴⁵⁶⁾ Nollan and Dolan could be important steps in strengthening the protection of private property promised in the Fifth Amendment. It is now for local governments and state courts, however, to decide if they will follow what the United States Supreme Court has mandated. If they choose to ignore the directives of those two opinions, planners and property owners will continue to litigate while property lies dormant.⁽⁴⁵⁷⁾ Nothing in the two cases suggest that fairly assessed, proportional impact fees are no longer viable.⁽⁴⁵⁸⁾ Only excessive fees imposed on developers should find a hostile reception in courts.⁽⁴⁵⁹⁾ In light of the wording of the Fifth Amendment, this is not only fair and just, it is long overdue.

Noreen A. Murphy^*

1. U.S. Const. amend. V. The Fifth Amendment "is made applicable to the states through the Fourteenth Amendment." Pennsylvania Cent. Transp. Co. v. New York City, 438 U.S. 104, 122 (1978).

2. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922) ("The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.").

3. See Susan M. Denbo, Development Exactions: A New Way to Fund State and Local Government Infrastructure Improvements and Affordable Housing?, 23 Real Est. L.J. 7, 7-8 (1994).

4. Black's Law Dictionary 557 (6th ed. 1990).

5. See id.

6. Salt Lake County v. Board of Educ., 808 P.2d 1056, 1058 (Utah 1991) (quoting Michael J. Mazuran, Evolution of Real Estate Development Exactions in Utah, Utah Bar J., Aug.-Sept. 1990, at 11; see also Ariz. Rev. Stat. Ann. § 11-1101(11) (West 1993 & Supp. 1995). The statute defines the term exaction as "a condition or requirement which is attached to a development approval and which compels the payment, dedication or contribution of goods, services, land or money to a public or quasi-public entity." Id.

7. See Theodore C. Taub, Exactions, Linkages, and Regulatory Takings: The Developers Perspective, 20 Urb. Law. 515, 525-28, 533-34 (1988). In addition to the constitutional challenges, a municipality imposing an exaction must possess authority to do so. See Denbo, supra note 3, at 10-11. Authority may be established either through specific enabling legislation, or it may be implied under the communities home rule powers. See id. at 11-12. Without establishing this authority, the exaction may be found to be ultra vires. See id. at 31.

An exaction may also be challenged as an illegal tax. See Taub, supra, at 527-28. Unlike the implied authority under which communities may impose development exactions, without express authorization from the state, communities cannot levy taxes. See id. at 527. The issue of whether the exaction is actually a tax is generally determined by the language of the ordinance. See id. The money raised cannot be placed in the general revenue fund of the community because the exaction then becomes similar to a general revenue measure, and it is likely the exaction will be found to be a tax. See id. However, if the ordinance under which the exaction was imposed specifies the municipal service or facility to which the money will be allocated, the exaction will not generally be found to be a tax. See id. at 527-28.

8. See Arthur C. Nelson, Development Impact Fees: The Next Generation, 26 Urb. Law. 541, 543 (1995). A developer may argue the exactions are a violation of equal protection under the Fourteenth Amendment and a denial of due process under the Fifth Amendment. See id. Due process generally involves the authority of the community to impose an exaction. See id. at 543-44. Authority to impose an exaction is specified in legislation or implied through a home rule. See id. at 544. To withstand equal protection challenges, the exaction must not be arbitrarily imposed on only selected developers. See id. at 544-45.

9. See Donald L. Connors & Michael E. High, The Expanding Circle of Exactions: From Dedication to Linkage, 50 Law & Contemp. Probs. 69, 70 (1987) ("The most common and least controversial type of exaction is an intradevelopmental dedication of land for streets, sidewalks, water and sewer lines, and, more recently, land for recreational or educational purposes." (footnote omitted)).

10. See Alan A. Altshuler & José A. Gómez-Ibáñez, Regulation for Revenue: The Political Economy of Land Use Exactions 3, 8-10 (1993); see also Connors & High, supra note 9, at 71-72.

11. See John J. Delaney et al., The Needs-Nexus Analysis: A Unified Test for Validating Subdivision Exactions, User Impact Fees and Linkage, 50 Law & Contemp. Probs. 139, 142-43 (1987).

12. See Connors & High, supra note 9, at 71-72.

13. See Altshuler & Gómez-Ibáñez, supra note 10, at 6. Developers may view impact fees as an unfair method of forcing them to foot the bill for capital improvements, but accept the fees as the cost of doing business. See id. at 9.

14. See id. at 8-10.

15. See Nelson, supra note 8, at 541 ("The fat lady has sung: development impact fees are here to stay." (footnote omitted)).

16. 483 U.S. 825 (1987).

17. Id. at 834 (quoting Agins v. Tiburon, 447 U.S. 255, 260 (1980)); see also id. at 837.

18. 114 S. Ct. 2309 (1994).

19. Id. at 2319.

20. See infra notes 28-102 and accompanying text.

21. See infra notes 110-234 and accompanying text.

22. See infra notes 235-321 and accompanying text.

23. See infra notes 322-454 and accompanying text.

24. See infra notes 322-88 and accompanying text.

25. See infra notes 389-408 and accompanying text.

26. See infra notes 409-54 and accompanying text.

27. See infra notes 455-59 and accompanying text.

28. See Jerry T. Ferguson & Carol D. Rasnic, Judicial Limitations on Mandatory Subdivision Dedications, 13 Real Est. L.J. 250, 252 (1984) (stating that land exactions existed "in colonial town ordinances, royal directories, and early state charters").

29. See id. at 252. The towns would use these areas for town commons, squares and parks. See id. The taking of this property was generally done without compensation. See William M. Treanor, Note, The Origins and Original Significance of the Just Compensation Clause of the Fifth Amendment, 94 Yale L.J. 694, 695 (1985). In most of the colonies, undeveloped land could be taken for construction of public roads without compensation. See id. It was also not uncommon for undeveloped land to simply be transferred to another landowner. See id.

30. See Ferguson & Rasnic, supra note 28, at 252. These regulations were referred to as the first subdivision plans. See id.

31. See Denbo, supra note 3, at 10-11; see also Altshuler & Gómez-Ibáñez, supra note 10, at 10 ("The power to levy exactions is rooted in the power to zone . . . .").

32. See Denbo, supra note 3, at 8.

33. Id. (quoting Thomas M. Pavelko, Subdivision Exactions: A review of Judicial Standards, 25 Wash. U. J. Urb. & Contemp. L. 269, 280 n.60 (1973)).

34. See Dennis J. Coyle, Property Rights and the Constitution: Shaping Society Through Land Use Regulation 22 (1993). The influx of immigrants to large cities, particularly in New York City, increased the pressure on local governments to bring order to these urban areas. See id.

35. See Altshuler & Gómez-Ibáñez, supra note 10, at 16. These services were generally for on-site improvements, and included streets, and water and sewer connections. See id.

36. See id. Before the imposition of exactions, towns relied on developers voluntarily providing the necessary services to the homeowners. See id. The developers, however, frequently did not provide the services that homeowners would need. See id. As a result, buyers were charged large and unexpected assessments on their property, or towns would have to assume the responsibility of connecting the new residents to local services and provide adequate roads. See id. During the Depression of the 1930s many homeowners defaulted on these charges. See id. at 8.

37. Advisory Comm'n on City Planning and Zoning, U.S. Dep't of Congress, A Standard City Planning Enabling Act (1928). The Standard Planning Enabling Act was adopted verbatim by most states. See Altshuler & Gómez-Ibáñez, supra note 10, at 18.

38. See Theodore C. Taub, Development Exactions and Impact Fees, in Inverse Condemnation and Related Government Liability 269, 271 (A.L.I.-A.B.A. Course of Study No. C872, 1993). The services considered essential and specifically authorized included streets, water mains and sewer lines. See id.

39. 272 U.S. 365 (1926).

40. Id. at 395.

41. See Gorieb v. Fox, 274 U.S. 603, 608 (1927). Holding a setback requirement was not in violation of equal protection or due process, but was a valid use of the communitys police power, the Court wrote:

State legislatures and city councils, who deal with the situation from a practical standpoint, are better qualified than the courts to determine the necessity, character and degree of regulation which these new and perplexing conditions [the increase in population of urban areas] require; and their conclusions should not be disturbed by the courts unless clearly arbitrary and unreasonable.Id. at 608.

42. See Jerold S. Kayden, Land-Use Regulations, Rationality, and Judicial Review: The RSVP in the Nollan Invitation (Part I), 23 Urb. Law. 301, 302-06 (1991).

43. See Natural Resources Defense Council, Inc., Land Use Controls in the United States 6 (Elaine Moss ed. 1977) ("Thus few challenges to governmental abridgements of private property rights will succeed solely on the grounds that they are not within the confines of `public use or the police power.").

44. Euclid, 272 U.S. at 395.

45. Id.

46. See, e.g., Berman v. Parker, 348 U.S. 26, 33 (1954).

The concept of the public welfare is broad and inclusive. The values it represents are spiritual as well as physical, aesthetic as well as monetary. It is within the power of the legislature to determine that the community should be beautiful as well as healthy, spacious as well as clean, well-balanced as well as carefully patrolled.Id. (citation omitted).

47. See Dennis J. Coyle, supra note 34, at 21. Regarding the setback provision of the challenged ordinance, the United States Supreme Court wrote:

The courts, it is true as already suggested, are in disagreement as to the validity of set-back requirements. [O]ne group of decisions holds [that the set-back] requirements have no rational relation to the public safety, health, morals, or general welfare. . . . The view of the other group is exactly to the contrary.Gorieb v. Fox, 274 U.S. 603, 609 (1927).

48. See Coyle, supra note 34, at 22-23. Atlantas zoning ordinance divided the city into "`three race districts, white, colored and undetermined.'" Id. at 23 (quoting Bruno Lasker, The Atlanta Zoning Plan, 48 Surv. 114 (1922)). This issue was also identified at the district court level in Ambler Realty v. Village of Euclid, 297 F. 307 (N.D. Ohio 1924), revd, 272 U.S. 365 (1926). In reaching his decision that the zoning ordinance enacted by the Village was unconstitutional, Judge Westenhaver wrote: "The purpose to be accomplished is really to regulate the mode of living of persons who may hereafter inhabit it. In the last analysis, the result to be accomplished is to classify the population and segregate them according to their income or situation in life." Id. at 316; see also Robert Collin & Michael Lytton, Linkage: An Evaluation and Exploration, 21 Urb. Law. 413, 430 (1989) (discussing the trend of linking office development to construction of affordable housing, "[z]oning is fundamentally exclusionary by the nature of its separation of land uses").

49. See Kayden, supra note 42, at 302 ("Since the introduction of zoning seventy-five years ago, courts have consistently employed a deferential standard to review the rationales underlying land-use regulations." (footnote omitted)).

50. See, e.g., City of Miami v. Rosen, 10 So. 2d 307, 309-10 (Fla. 1942); Schofield v. Bishop, 16 S.E.2d 714, 719 (Ga. 1941); Zadworny v. City of Chicago, 44 N.E.2d 426, 427-28 (Ill. 1942); Dundee Realty v. City of Omaha, 13 N.W.2d 634, 640 (Neb. 1944).

51. See Taub, supra note 38, at 271.

52. See R. Marlin Smith, From Subdivision Improvement Requirements to Community Benefit Assessments and Linkage Payments: A Brief History of Land Development Exactions, 50 Law & Contemp. Probs. 5, 7 (1987).

53. See Connors & High, supra note 9, at 70.

54. See, e.g., Ayres v. City Council, 207 P.2d 1, 8 (Cal. 1949) (citing Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 387 (1926)).

55. See, e.g., Mefford v. City of Tulare, 228 P.2d 847, 850-51 (Cal. Ct. App. 1951) (upholding a requirement that developers provide sewers); Allen v. Stockwell, 178 N.W. 27, 30 (Mich. 1920) (upholding a requirement that developers provide sidewalks); Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448, 461 (Tex. Ct. App. 1968) (upholding a requirement that developers provide watermains).

56. See Ayres, 207 P.2d at 8 (citing Euclid, 272 U.S. at 387).

57. 207 P.2d 1 (Cal. 1949).

58. See id. at 8.

59. See id. at 3.

60. See id.

61. See id.; see also Smith, supra note 52, at 8 ("The real importance of Ayres . . . [is] that it upheld a regulation requiring land dedications of an additional right of way along an existing public street bordering on the subdivision.").

62. See Ayres, 207 P.2d at 6.

63. See id.

64. See id.

65. See id.

66. Id. at 7 ("It is no defense to the conditions imposed in a subdivision map proceeding that their fulfillment will incidentally also benefit the city as a whole.").

67. See id. ("Nor is it a valid objection to say that the conditions contemplate future as well as more immediate needs.").

68. Ayres, 207 P.2d at 7.

69. See id. at 8 ("No sufficient reasons have been advanced which would justify this court in overturning the findings of the trial court as to the authority for and the reasonableness of the conditions imposed.").

70. See id.

71. Id.

In Village of Euclid v. Ambler Realty Co., it was observed that regulations, the wisdom, necessity and validity of which as applied to existing conditions were so apparent that they are now uniformly sustained, would probably have been rejected as arbitrary and oppressive a century or even a half century ago . . . only those regulations must fall which clearly do not meet the constitutional meaning as applied to changing conditions.Id. (citation omitted).

72. See id. at 8; see also Smith, supra note 52, at 8 ("Ayres v. City Council, [is] often considered the seminal case supporting mandatory street-dedication requirements.").

73. See Smith, supra note 52, at 8; see also Arrowhead Dev. Co. v. Livingston County Rd. Commn, 322 N.W.2d 702, 709 (Mich. 1982) (holding an ordinance that required a developer to remove a hill and regrade the road was beyond the authority of the municipality).

74. See Connors & High, supra note 9, at 70.

75. See id. at 71.

76. See Smith, supra note 52, at 7-8.

77. See Taub, supra note 7, at 521.

78. See Altshuler & Gómez-Ibáñez, supra note 10, at 19; Smith, supra note 52, at 14 ("Frequently, the amount of land obtainable through a dedication would be too small or too poorly placed to be useful to the public.").

79. See Connors & High, supra note 9, at 71; Taub, supra note 38, at 269.

80. See Smith, supra note 52, at 14. The reason behind offering developers the option of a cash payment was not entirely altruistic. See id. Even though the developer may not have sufficient land to donate, the theory behind in lieu payments was "each subdivision ought to pay its fair share of the cost of providing recreational and school lands." Id.

81. See Taub, supra note 38, at 271. The fee imposed on the developer had to be proportional to the impact of the development. Rachel M. Janutis, Note, Nollan and Dolan: "Taking" a Link out of the Development Chain, 1994 U. Ill. L. Rev. 981, 986.

82. See Denbo, supra note 3, at 10; Taub, supra note 38, at 271.

83. See, e.g., City of Montgomery v. Crossroads Land Co., 355 So. 2d 363, 365 (Ala. 1978) (holding that a fee in lieu of a land dedication was not specifically authorized by statute); see also John J. Delaney, Exactions: From Early Subdivision Dedications to User Impact Fees and Linkage in the Post-Nollan Era, in 2 Land Use Institute: Planning, Regulation, Litigation, Eminent Domain, and Compensation 859, 864 (A.L.I.-A.B.A. Course of Study No. C750, 1992) ("In-lieu fees have not received unanimous approval from the courts."); Smith, supra note 52, at 14 ("The early decisions addressing the cash-in-lieu payments issue struck down such requirements, commonly on the ground that there was no statutory authority . . . .").

84. See, e.g., Krughoff v. City of Naperville, 369 N.E.2d 892, 895 (Ill. 1977) (holding that a dedication of land or money in lieu of land is constitutional when there is a proportional relationship between the amount required and the need created by the development); Taub, supra note 7, at 521 (stating that in addition to proper authority, the amount of the fee in most jurisdictions must be proportional to the need created by the development).

85. See Altshuler & Gómez-Ibáñez, supra note 10, at 8-9. But see Connors & High, supra note 9, at 69 ("This expansion of the exaction concept has eased the financial crisis of municipalities . . . .").

86. See Nelson, supra note 8, at 541.

87. See Taub, supra note 38, at 272. The author identifies four areas where impact and in lieu fees differ. See id. In addition to the two areas discussed in the text, the other areas are: (1) the time of collection--while in lieu fees are collected at plat approval, impact fees are generally collected at the permit stage, and (2) the method for calculating the amount of the fee--in lieu fees are calculated as a percentage of acreage to be developed, while impact fees are assessed based on square footage, number of bedrooms, or living units to be built. See id. It is suggested that impact fees are fairer than in lieu fees when assessing the actual impact of a development on a community. See id.

88. See id.

89. See id.

90. See id. In addition to the traditional uses for in lieu fees, impact fees may be used to provide for schools, police, fire, and emergency facilities. See id.; see also supra note 80 and accompanying text for a discussion of the traditional uses of in-lieu fees.

91. See Altshuler & Gómez-Ibáñez, supra note 10, at 19.

92. See id. The authors identify the "progrowth coalition" as consisting of landowners, developers, lawyers, retailers, banks, and organized labor. Id.

93. See id. Before 1970, communities competed to attract businesses by offering "subsidies, tax abatements, zoning variances, and other regulatory adjustments--for investment dollars." Id. at 8-9.

94. See id. at 10. This progrowth attitude has been a "consistent theme in local governance" for most of American history. Id.

95. See id. ("Local democracy has been dominated by growth `coalitions, composed of individuals and enterprises with a direct stake in real estate development."). Because this coalition was so powerful at the local level, politicians were inclined to accede to their recommendations of continued growth for the rewards on "election day." Id. at 19.

96. See id. at 9.

97. See Altshuler & Gómez-Ibáñez, supra note 10, at 19-20.

98. See Nelson, supra note 8, at 542. According to a 1991 study, from 1955-1978 federal money given to local governments to build and improve the local infrastructure accounted for 3.6 percent of the gross national product; between 1978-1991 that figure had dropped to 2.8 percent. See id.

99. See id. at 542-43; see also Altshuler & Gómez-Ibáñez, supra note 10, at 23-25. Seven factors that contributed to the questioning of continued progrowth are outlined as follows: (1) neighborhood activism; (2) environmental concerns; (3) resistance to increased taxes; (4) cutbacks in federal aid; (5) crumbling community infrastructures that could not tolerate an increase in growth; (6) state and federal mandates for which local governments were required to provide funding; and (7) more advanced fiscal impact analyses that suggested the economic benefits of new development did not offset the impact on the infrastructure. See Altshuler & Gómez-Ibáñez, supra note 10, at 19-33.

100. Nelson, supra note 8, at 543.

101. Id.

102. See Taub, supra note 7, at 1.

103. U.S. Const. amend. V. In addition to uncompensated takings, development exactions may be challenged as violations of due process and equal protection. See Nelson, supra note 8, at 543.

Due process requires that the exaction imposed be within the police powers of the local government. See id. at 543-44. This requirement is satisfied if the state has either specific enabling legislation, or where state courts have granted local governments the authority through their "home rule" powers. Id. Florida, for example has no specific legislation, but has been among the most active states in imposing development exactions. See Martin L. Leitner & Susan P. Schoettle, A Survey of State Impact Fee Enabling Legislation, 25 Urb. Law. 491, 507 (1993) (enabling legislation has been proposed, but local governments have resisted for fear that case law already in place will be superseded).

104. See Denbo, supra note 3, at 8.

105. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922) ("The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.").

106. See Robert H. Freilich, Solving the "Taking" Equation: Making the Whole Equal the Sum of Its Parts, 15 Urb. Law. 447, 451 (1983); see also Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1019 (1992) (holding that depriving a property owner of all economically beneficial use of the land is a taking); Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 440 (1982) (holding a regulation authorizing physical invasion to be a per se taking).

107. See Taub, supra note 7, at 528; see also David L. Callies & Malcom Grant, Paying for Growth and Planning Gain: An Anglo-American Comparison of Development Conditions, Impact Fees, and Development Agreements, 23 Urb. Law. 221, 228-29 (1991). The authors attribute the confusion and uncertainty surrounding landuse regulations in the United States to the system of government. See id. In Britain, the planning system, while administered at the local level, is in fact centralized and generally uniform. See id. at 228.

108. See Delaney et al., supra note 11, at 145.

109. See id.; Leitner & Schoettle, supra note 103, at 493-94; see also infra Part III.A-C.

110. See Taub, supra note 7, at 528-29. It has also been called the "anything goes" test when used in California. Id. at 528.

111. See Delaney et al., supra note 11, at 148.

112. 207 P.2d 1 (Cal. 1949); see also supra notes 57-72 and accompanying text.

113. See Ayres, 207 P.2d at 6-7.

114. 484 P.2d 606 (Cal. 1971).

115. See id. at 609.

116. See id. at 610. Associated Home Builders argued that "a dedication requirement is justified only if it can be shown that the need for additional . . . facilities is attributable to the increase in population stimulated by the new subdivision alone." Id. For an analysis of the Ayres argument see supra notes 57-75 and accompanying text.

117. See Walnut Creek, 484 P.2d at 610-11.

118. See id. "In Ayres v. City Council of City of Los Angeles, we rejected similar arguments. . . . We held, further, that the conditions were not improper because their fulfillment would incidentally benefit the city as a whole . . . ." Id. at 610 (citation omitted).

119. See id.

120. See id. at 610-11 ("The elimination of open space in California is a melancholy aspect of the unprecedented population increase which has characterized our state in the last few decades. Manifestly governmental entities have the responsibility to provide park and recreation land to accommodate this human expansion . . . .").

121. See Delaney et al., supra note 11, at 149 (writing that Utah and Md. have used this standard).

122. See, e.g., Howard County v. JJM, Inc., 482 A.2d 908, 921 (1983) (finding an ordinance that required a land reservation to be used for a possible future roadway unconstitutional because the restriction was of unlimited duration, and there was no reasonable relation between the exaction and the subdivision).

123. See Collis v. City of Bloomington, 246 N.W.2d 19, 20, 26 (Minn. 1976).

124. Id. at 26.

125. See Builders Assoc. of Santa Clara v. Superior Court, 529 P.2d 582, 584-85 (Cal. 1974).

126. See id. at 587. The plaintiff's argument that the ordinance was unconstitutional centered on the fact that the city council had abdicated its zoning powers to the school committee for the period of the building moratorium and allowed the school board to control zoning issues. See id. at 585-86. The court rejected this argument. See id. at 586.

127. See Candid Enter., Inc. v. Grossmont Union High Sch. Dist., 705 P.2d 876, 881-82 (Cal. 1985) (stating that the developer did not contest the authority of the community to impose school impact fees, but argued that state legislation preempted the citys ordinance).

128. 234 Cal. Rptr. 1 (Cal. Ct. App. 1987).

129. See id. at 3-4.

130. See id. at 4. The amount of the fee was not to exceed five dollars per square foot of new office space. See id.

131. See id.

132. See id. at 4-5. The court acknowledged some confusion between the two areas writing, "[t]he distinction between a tax and other exactments is admittedly blurred." Id. at 4. The court concluded, "unlike most taxes, the fees imposed by this Ordinance are not compulsory but are exacted only if the developer voluntarily chooses to create new office space." Id. at 5.

133. Id. at 4 ("Typically, a development fee is an exaction imposed as a precondition for the privilege of developing the land. Such fees are commonly imposed on developers by local governments in order to lessen the adverse impact of increased population generated by the development." (emphasis added)).

134. Russ, 234 Cal. Rptr. at 5 ("There is little difference between [sewers, parks and lights] and the benefit to the public from the increased transit services paid for by the transit fee.").

135. See id. at 4. The studies were based on a 45 year lifespan for office buildings and the fees imposed on the developers factored in the impact of the new office space for that time period. See id. The payment, however, was due upon completion of construction but could be paid on an installment plan. See id. There appears to have been a battle of expert witnesses during the two week trial. The citys witnesses maintained that long-term prognostications were legitimate and the developers witness argued that too many variables were involved to make the figure accurate. See id. at 12. In reviewing the material, the appellate court found that there was "ample evidence" to support the decision of the trial court that the 45 year figure was not completely arbitrary. Id.

136. See Delaney et al., supra note 11, at 149.

137. Id. at 149-50.

138. See id. at 149-51.

139. See id. at 151 ("One court actually acknowledged the test as `an acceptable statement of the yardstick to be applied, but did not apply it because of the proof problems its restrictive application would cause." (quoting Jordan v. Village of Menomee Falls, 137 N.W.2d 442, 447 (Wis. 1965))).

140. 167 N.E.2d 230 (Ill. 1960).

141. See id. at 232-33.

142. Id. at 233.

143. Id. (quoting Downers Grove, Ill., Subdivision Control Ordinance (1957)). The village titled their plan the "Subdivision Control Ordinance." Id. (quoting Downers Grove, Ill., Subdivision Control Ordinance (1957)).

144. Id. (quoting Downers Grove, Ill., Subdivision Control Ordinance (1957)).

145. Id. (quoting Downers Grove, Ill., Subdivision Control Ordinance (1957)). The portion of the ordinance read:

Every such plat, for the purpose of meeting reasonable requirements for educational facilities, . . . shall dedicate for educational purposes, such area as may be deemed necessary by the Plan Commission to facilitate the establishment of school facilities . . . Provided Further, that should the Plan Commission deem that the dedication of such land will not of itself meet the reasonable requirements of providing educational facilities . . . the Plan Commission may require any additional means for the providing of reasonable facilities as it may deem necessary.Id. (quoting Downers Grove, Ill., Subdivision Control Ordinance (1957)).

146. See Rosen, 167 N.E.2d at 232. Rosen was joined in the suit by Firestone Realty, Inc. See id.

147. See id. Mr. Rosen declined to proceed with his plan to subdivide his two lots into four, but Firestone Realty paid, under protest, the demanded $325 per lot for each of the 52 lots. See id.

148. Id. at 233.

149. Id. The court also noted that this same reasoning led to approval of another development exaction requiring curbs and gutters. See id. at 234;