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Uses of Fees or Alternatives to Fund Transit (2008)

Chapter: IV. LEGAL ISSUES

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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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Suggested Citation:"IV. LEGAL ISSUES." National Academies of Sciences, Engineering, and Medicine. 2008. Uses of Fees or Alternatives to Fund Transit. Washington, DC: The National Academies Press. doi: 10.17226/23068.
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13 The following table shows an example of the calculation of cost per person per trip end using Seattle, Washington’s, Northgate revitalization area: Travel Mode Mitigation Cost of Local Trips Other Funding Available Unfunded Cost of Local Trips Growth Trip Ends Bicycle $ 854,850 $0 $ 854,850 1,054 Pedestrian 4,318,367 0 4,318,367 2,894 Transit 78,300 0 78,300 1,660 Roadway 4,919,446 0 4,919,446 9,302 Totals $10,170,963 $0 $10,170,963 14,910 Cost per growth trip end $10,170,963 ÷ 14,910 = $682.16 The cost per growth trip end must then be translated into each development type by cost per square foot or residential unit. The two methodologies discussed above have also been referred to as “inductive” (consumption driven) and “deductive” (improvement driven).66 One of the ad- vantages of the inductive methodology is that major changes to general plan growth will not affect the calcu- lations, thus adding flexibility to the planning process. It matters little how much residential, commercial, or industrial properties are constructed. The new devel- opment, either residential or commercial, pays its pro- rata share of the need based upon the model. “Such a system is, in effect, a no-fault impact fee determina- tion.”67 Major disadvantages of the inductive fee calculation include: • The standardization of the models used to deter- mine the fee, generally conservative in nature, may not take special needs of the community into account; the fees collected may not match the costs of a specific facil- ity and there may be either too much money collected or too little; • The focus on the final product, which ignores over- head or support facilities; and • The need to determine how much of the financing for a particular facility is to be paid from accumulated impact fees; the remaining fees should come from other resources.68 With respect to the deductive, or improvements- driven, methodology, the greatest advantage is deemed to be the ability of a municipality to accommodate im- pact fees to the uniqueness of each facility to be funded. The disadvantages include the considerable amount of 66 Dennis H. Ross & Scott Ian Thorpe, Impact Fees: Practi- cal Guide for Calculation and Implementation, 118 JOURNAL OF URBAN PLANNING AND DEVELOPMENT, 106–118 (1992). 67 Id. 68 Id. effort required to generate the information necessary for the impact fee calculations. Inadvertent omission of projects may result in inadequate collections for the facilities. Further, for large jurisdictions that may not be able to determine the extent or location of growth, this method may not be an option.69 IV. LEGAL ISSUES For an impact fee or other exaction to be legal, there must be a valid statute that expressly or impliedly, through general police powers, authorizes a municipal entity to impose a development exaction. An impact fee or other exaction must also pass three constitutional tests. First, the impact fee must meet a substantive due process test, where the local government has the au- thority to assess, collect, and spend impact fees for pub- lic facilities. The second is the equal protection test where the fees must be applied to all parties on the same basis. All new development creating an impact must be assessed the same kind of fees, although the fees may vary by land-use category, and the fees must be rationally related to the public purpose.70 The third test is whether the impact fee constitutes an unconsti- tutional “taking” of property. The courts have developed three tests to determine if a connection or “nexus” ex- ists between the exaction and the development that creates the need for the infrastructure improvements and the benefits to the development of the infrastruc- ture improvements.71 There must be a rational relation- ship between the need for new facilities to accommodate growth and the fees new development pays to finance those facilities.72 Early case law makes clear that, to be valid, such fees must be collected (and exactions and dedications required) solely for the public infrastructure 69 Id. Ross and Thorpe conclude that both methodologies will relate the needs and service levels of the community necessary to retain inherent validity. Nevertheless, the deductive (im- provements driven) methodology will result in an impact fee capable of providing facilities specific to the community needs. 70 Carrion & Libby, supra note 9, at 6. 71 Id. 72 Id.

14 for which land development causes a need. Courts will uniformly strike down, usually as an unauthorized tax, land conditions that are not so connected.73 A. State Impact Fee Enabling Acts 1. Explicit or Implied Authority to Impose Impact Fees for Transit One of the most important criteria in determining whether or not impact fees are permissible is whether there is legislative authority to impose them. Subject to the limitations of a particular jurisdiction on the impo- sition of development impact fees generally, and impact fees for transit specifically, impact fees may generally be imposed to fund the public capital facilities that can be reasonably construed to fall within a state’s enabling legislation and home rule powers. At least 20 states have enacted impact fee legislation that expressly or implicitly authorizes the use of impact fees for transit capital purposes. Local jurisdictions in at least three of those states (Florida, California, and Oregon) have adopted ordinances for the imposition of impact fees for transit purposes. The Florida Impact Fee Act, possibly the briefest and broadest of all authorizing legislation, is based on a finding of the legislature that “impact fees are an out- growth of the home rule power of a local government to provide certain services within its jurisdiction.”74 In Florida, impact fees must be adopted by ordinance of a county or a municipality or by resolution of a special district, and such ordinance or resolution at a minimum must require calculation of the fee based on the most recent and localized data, provide for accounting and reporting of impact fee expenditures, limit administra- tive charges for the collection of impact fees to actual costs, and provide a minimum 90 days of notice before the effective date of the ordinance.75 The enactment of an impact fee ordinance for transit capital purposes in Florida is thus limited only by the home rule powers of a county, municipality, or special district. California relies on broad language when defining the public facilities for which impact fees may be ex- pended as “public improvements, public services and community amenities.”76 In Colorado, the “Local Government Land Use Con- trol Enabling Act of 1974”77 authorizes local govern- ments, including a county, home rule or statutory city, town, territorial charter city, or city and county, to im- pose an impact fee or other similar development charge to fund expenditures on “capital facilities” needed to 73 David L. Callies, Exactions, Impact Fees and Other Land Development Conditions, AMERICAN INSTITUTE OF CITY PLANNING, PROCEEDINGS OF 1998 NATIONAL PLANNING CONFERENCE (1998). 74 FLA. STAT. ANN. § 163.31801(2). 75 FLA. STAT. ANN § 163.31801(3). 76 CAL. GOV’T CODE § 66000(d). 77 COLO. REV. STAT. ANN. § 29-20-101 et seq. serve new development. The term “capital facility” means any improvement or facility that 1) is directly related to any service that a local government is author- ized to provide; 2) has an estimated useful life of 5 years or longer; and 3) is required by the charter or general policy of a local government pursuant to a resolution or ordinance.78 Similarly, in Hawaii, the city and county of Hono- lulu, the county of Hawaii, the county of Kauai, and the county of Maui are authorized to levy and collect impact fees from a developer to fund all or a portion of the “public facility capital improvement costs” required by the development from which it is collected, or recoup the cost of existing public facility capital improvements made in anticipation of the needs of a development. “Public facility capital improvement costs” are defined as “costs of land acquisition, construction, planning and engineering, administration, and legal and financial consulting fees associated with construction, expansion, or improvement of a public facility. Public facility capi- tal improvement costs do not include expenditures for required affordable housing, routine and periodic main- tenance, personnel, training, or other operating costs.”79 The New Jersey Transportation Development Dis- trict Act of 198980 authorizes the assessment of devel- opment fees on developments within special financing districts for transportation projects including, in con- nection with public transportation service or regional ridesharing programs: Passenger stations, shelters and terminals, automobile parking facilities, ramps, track connections, signal sys- tems, power systems, information and communication systems, roadbeds, transit lanes or rights-of-way, equip- ment storage and servicing facilities, bridges, grade cross- ings, rail cars, locomotives, motorbus and other motor ve- hicles, maintenance and garage facilities, revenue handling equipment and any other equipment, facility or property useful for or related to the provision of public transportation service or regional ridesharing programs.81 In Oregon,82 Wisconsin,83 and Arkansas,84 the impact fee statutes authorize impact fees for “transportation,” “other transportation facilities,” and “public transporta- tion,” respectively, without regard to transportation mode. The New Mexico Development Fees Act85 is more restrictive but still authorizes the use of impact fees for bike and pedestrian trails and bus bays in addition to roadway facilities.86 In North Carolina, the courts have upheld the au- thority of cities to impose utility system impact fees under the North Carolina public enterprise statute 78 COLO. REV. STAT. ANN. § 29-20-104.5. 79 HAW. REV. STAT. ANN. § 46-141. 80 N.J. STAT. ANN. § 27:1C-1 et seq. 81 N.J. STAT. ANN. § 27:1C-3. 82 OR. CODE ANN. §§ 223.297–223.314. 83 WIS. STAT. ANN. § 66.0617. 84 ARK. CODE ANN. § 14-56-103. 85 N.M. STAT. ANN. § 5-8-1 et seq. 86 N.M. STAT. ANN. § 5-8-2(D)(2).

15 without the necessity of specific enabling legislation.87 The public enterprise statute provides that “a city shall have full authority to finance the cost of any public en- terprise by levying taxes, borrowing money, and appro- priating any other revenues therefor….”88 “Public en- terprise” is defined to expressly include public transportation systems.89 Other states with general authorizing language that arguably would support the enactment of impact fees or other exactions for transit capital purposes include the following: • Maine90 (“infrastructure facilities include, but are not limited to” an enumerated list of public infrastruc- ture facilities). • Maryland91 (any county, or municipal corporation, including Balti- more City, that exercises authority granted by this article may enact and is encouraged to enact ordinances or other laws providing for or requiring: (1) the planning, staging or provision of adequate public facilities and affordable housing; [and] (2) off-site improvements or dedication of land for public facilities essential for a development). • Rhode Island92 (“public facilities” include those public facilities consistent with a community’s capital improvement program). • Tennessee93 (71 cities incorporated under the Mayor-Aldermanic Charter and Modified City-Manager Charter authorized to impose impact fees for public facilities). • Vermont94 (“capital project” means any physical betterment or improvement including furnishings, ma- chinery, apparatus, or equipment for such physical bet- terment or improvement). • West Virginia95 (impact fees may be used to fund “county services” defined to include “all other direct and indirect county services authorized by this code.”). 2. Other Authority Impact fees were originally adopted by local govern- ments absent explicit state authorizing legislation and defended as an exercise of the local government’s police power. In certain states, the courts have held that transportation impact fees could be collected despite the absence of a specific legislative enactment enabling such collection.96 In Florida, where impact fees were 87 South Shell Inv. v. Town of Wrightsville Beach, N.C., 703 F. Supp. 1192 (1988). 88 N.C. GEN. STAT. ANN. § 160A-313. 89 N.C. GEN. STAT. ANN. § 160A-311(5). 90 ME. CODE ANN. 30-A-§ 4354. 91 MD. ANN. CODE art. 66B § 10.01. 92 “Rhode Island Development Fee Act,” R.I. CODE ANN. §§ 45-22.4-1 et seq. 93 TENN. CODE ANN. § 6-2-201(15). 94 24 VT. STAT. ANN. §§ 5200 et seq. 95 W. VA. CODE ANN. §§ 7-20-1 et seq. 96 Many of the cases discussed herein relate to road or transportation impact fees and relate most often to fees im- widely used prior to the adoption of the state’s Impact Fee Act in 2006, the courts affirmed the validity of a county ordinance imposing an impact fee on a new de- velopment for the purpose of constructing roads made necessary by the increased traffic generation.97 The re- cord indicated that the county’s comprehensive plan recognized that extensive road improvements would be necessary in view of the extraordinary growth rate be- ing experienced in the county and the consequent need to maintain a consistent level of road service and qual- ity of life.98 In McCarthy v. City of Leawood,99 the Kansas Su- preme Court held that, absent specific legislative au- thority to impose impact fees, reasonable impact fees may be enacted under that state’s constitutionally granted Home Rule authority.100 In that case, landown- ers sought declaratory relief invalidating a city’s use of an ordinance that conditioned building permits and plat approval within a certain highway corridor on the pay- ment of highway impact fees. The court also rejected the landowners’ arguments that the fee was unreason- able, that the fee was a “taking of property” for Fifth Amendment purposes, that the fee constituted an im- permissible tax, and that other constitutional and statutory provisions precluded enactment of the impact fees.101 The Ohio Supreme Court has upheld the authority of Ohio cities and villages to charge impact fees under that state’s Home Rule amendment to the state Consti- tution. In the case of Home Builders Assoc. of Dayton v. Beavercreek,102 the court applied a “dual rational nexus test” to determine whether the impact fee was a taking under the federal and state constitutions. The court found that a traffic impact fee ordinance enacted by the city of Beavercreek is an exaction, not a tax, and that an exaction fee adopted by ordinance that partially funds new highway projects is constitutional under both posed for road improvements; however, the reasoning would be applicable in the case of transit improvements. The only liti- gated impact fee relating to transit is the case of Russ Bldg. P’ship v. City and County of San Francisco, 199 Cal. App. 3d 1496 (1987), discussed at greater length herein. 97 Home Builders and Contractors Ass’n of Palm Beach County, Inc. v. Bd. of County Comm’rs of Palm Beach County, 446 So. 2d 140 (Fla. Dist. Ct. App. 4th Dist. 1983); Frank J. Wozniak, Validity, Construction and Application of Road or Transportation Impact Fee Statutes or Ordinances, 97 A.L.R. 5th 123 (2002). 98 Id. 99 257 Kan. 566, 894 P.2d 836 (1995). 100 Art. 12, § 5 of the Kansas Constitution, the Cities’ Powers of Home Rule, states, in relevant part: (b) Cities are hereby empowered to determine their local af- fairs and government including the levying of taxes, excises, fees, charges and other exactions except when and as the levy- ing of any tax, excise, fee, charge or other exaction is limited or prohibited by enactment of the legislature applicable uniformly to all cities of the same class. 101 McCarthy, 894 P.2d 836, 844–48. 102 89 Ohio St. 3d. 121, 729 N.E.2d 349 (2000).

16 the Ohio and United States Constitutions if 1) there is a reasonable connection between the city’s need for con- structing new roadways and the increase in traffic gen- erated by new developments; and 2) if a reasonable connection exists, whether there is a reasonable connec- tion between the expenditure of the impact fee imposed on the developer and the benefits accruing to the devel- oper from the construction of the roadways.103 In Wyoming, the Supreme Court upheld develop- ment impact fees enacted by ordinance by the City of Rawlins as consistent with the city’s constitutional power to levy and collect special assessments, but also the separate power of municipalities to enact and en- force zoning regulations.104 Most recently, the Nebraska Supreme Court ruled that a city operating under a limi- tation of powers home rule charter was empowered, in the absence of an express delegation by the legislature of the power to tax, to enact an ordinance conditioning the issuance of a building permit for new residential development on the payment of impact fees intended to offset the expenses associated with providing municipal services to the new development.105 3. Implicit Prohibition on the Use of Impact Fees for Transit Approximately 14 states implicitly prohibit the use of impact fees for transit capital purposes by omission. For example, the Georgia Development Impact Fee Act106 authorizes municipalities and counties that have adopted a comprehensive plan containing a capital im- provements element to impose, by ordinance, develop- ment impact fees as a condition of development ap- proval to pay for a proportionate share of the cost of system improvements needed to serve growth and de- velopment. “System improvement costs” is defined to mean costs incurred to provide additional “public facili- ties” capacity; “public facilities” means: (A) Water supply production, treatment, and distribution facilities; (B) Waste-water collection, treatment, and disposal facili- ties; (C) Roads, streets, and bridges, including rights of way, traffic signals, landscaping, and any local components of state or federal highways; (D) Storm-water collection, retention, detention, treat- ment, and disposal facilities, flood control facilities, and bank and shore protection, and enhancement improve- ments; 103 Id. at 354. 104 Coulter v. City of Rawlins, 662 P.2d 888 (1983); Wyo. CONST.,art. 13, § 1(b); WYO. STAT. ANN. § 15-1-601(d)(1) (1977) (1980 Replacement). 105 Home Builders Ass’n of Lincoln v. City of Lincoln, 271 Neb. 353, 711 N.W.2d 871 (2006); Frank J. Wozniak, Validity, Construction and Application of Road or Transportation Im- pact Fee Statutes or Ordinances, 97 A.L.R. 5th 123 (2002). 106 GA. CODE ANN. § 36-71-1 et seq. (E) Parks, open space, and recreation areas and related facilities; (F) Public safety facilities, including police, fire, emer- gency medical, and rescue facilities; and (G) Libraries and related facilities.107 The Georgia Development Fee Act implicitly prohib- its the use of development impact fees for transit capi- tal purposes by omission from the definition of “public facilities.” Similarly, the Indiana Impact Fee Act108 authorizes the legislative body of a local unit of government to adopt an ordinance imposing impact fees on new devel- opment in the geographic area over which the unit ex- ercises planning and zoning jurisdiction. “The ordi- nance must aggregate the portions of the impact fee attributable to the ‘infrastructure types’ covered by the ordinance so that a single and unified impact fee is im- posed on each new development.”109 “Infrastructure type” is defined to mean any of the following types of infrastructure covered by an impact fee ordinance: (1) Sewer, which includes sanitary sewerage and waste- water treatment facilities. (2) Recreation, which includes parks and other recrea- tional facilities. (3) Road, which includes public ways and bridges. (4) Drainage, which includes drains and flood control fa- cilities. (5) Water, which includes water treatment, water storage, and water distribution facilities.110 One further example is the New Hampshire statute, which authorizes innovative land-use controls.111 Inno- vative land-use controls may include impact fees, de- fined as follows: [A] fee or assessment imposed upon development, includ- ing subdivision, building construction or other land use change, in order to help meet the needs occasioned by that development for the construction or improvement of capital facilities owned or operated by the municipality, including and limited to water treatment and distribution facilities; wastewater treatment and disposal facilities; sanitary sewers; storm water, drainage and flood control facilities; public road systems and rights-of-way; munici- pal office facilities; public school facilities; the municipal- ity's proportional share of capital facilities of a coopera- tive or regional school district of which the municipality is a member; public safety facilities; solid waste collec- tion, transfer, recycling, processing and disposal facilities; public library facilities; and public recreational facilities not including public open space.112 Like Georgia and Indiana, the New Hampshire law includes a fairly detailed recitation of capital purposes 107 GA. CODE ANN. § 36-71-2 (17). 108 IND. CODE ANN. § 36-7-4-1300 et seq. 109 IND. CODE ANN. § 36-7-4-1309. 110 IND. CODE ANN. § 36-7-4-1309. 111 N.H. REV. STAT. § 674:21. 112 N.H. REV. STAT. § 672:21,V.

17 for which impact fees may be imposed but omits transit capital purposes. Statutory authority in Illinois and Pennsylvania au- thorizes the adoption of impact fees by ordinance for roads only.113 Other states that arguably prohibit the use of impact fees for transit purposes by exclusion in- clude Alabama (applicable only in Baldwin County),114 Idaho,115 Montana,116 Nevada,117 South Carolina,118 Texas,119 Utah,120 Virginia,121 and Washington.122 4. Other Prohibitions In at least seven states where there is no authorizing legislation for impact fees, court decisions have been unfavorable, striking down impact fees enacted as regu- latory fees in accordance with local zoning and land-use powers.123 It is generally accepted in Massachusetts that, other than in the City of Boston and as authorized by the Cape Cod Commission Act of 1990 (as applied to Cape Cod’s 15 towns), the state’s Zoning Act124 and Sub- division Control Law125 do not authorize cities and towns to impose impact fees. In Northeast Builders Assn of Massachusetts v. Town of Dracut,126 the court declared the town’s imposition of a $2,000 impact fee per residential unit to be a tax and therefor invalid. Similarly, in Dacey v. Town of Barnstable, 127 the Barn- stable Superior Court ruled invalid an inclusionary zon- ing ordinance designed to collect fees per residual lots created. The court held that the fee was in fact an unconstitutional tax. Like the Massachusetts courts, the Mississippi Su- preme Court has held that the state lacked a specific 113 The Illinois Road Improvement Law, 605 ILL. COMP. STAT. 5/5-901 et seq.; and 53 PA. CONS. STAT. § 10502-A et seq. 114 ALA. CODE ANN. 1975 § 45-2-243.80. 115 IDAHO CODE ANN. § 67-8201 et seq. 116 MONT. CODE. ANN. § 7-6-1601 et seq. 117 NEV. REV. STAT. 278B.010 et seq. 118 S.C. CODE ANN. § 6-1-910 et seq. 119 TEX. CODE ANN. § 395.001. 120 UTAH CODE ANN. § 11-36-101 et seq. 121 VA. CODE ANN. § 15.2-2317 et seq. 122 WASH. REV. CODE 82.02.050 et seq. However, as noted elsewhere, Washington’s State Environmental Policy Act pro- vides a basis to mitigate the impacts of development on transit as part of the built environment. 123 The Minnesota court has sidestepped the issue and re- served to the future the questions of whether impact fees are authorized by Minnesota’s Municipal Planning Act or can be authorized under home rule charters or the statutes applicable to statutory cities. County Joe, Inc. v. City of Eagan, 560 N.W.2d 681 (1997). It has been suggested that this uncertainty poses significant risks for any city imposing impact fees. Floyd B. Olson, Daniel J. Greensweig & Scott J. Riggs, The Future of Impact Fees in Minnesota, 24 WM. MITCHELL L. REV. 635 (1988). 124 MASS. GEN. LAWS ch. 40A, § 1 et seq. 125 MASS. GEN. LAWS ch. 41, § 81K. 126 Middlesex Super. Ct., C.A. No. 87-6222 (1988). 127 Barnstable Super. Ct., C.A. No. 00-53 (2000). constitutional provision or statute regarding implemen- tation of development impact fees, municipal planning statutes did not grant cities the authority to adopt im- pact fees, and impact fees did not qualify as regulatory in nature but rather constituted an unauthorized tax.128 This is also true in Louisiana, where the Attorney Gen- eral has opined that the power to tax is reserved to the state legislature and neither a city nor a parish may levy an impact fee for the purpose of raising revenues.129 The Iowa Supreme Court has also held that a city’s mandatory park dedication fees, which were made a condition of obtaining subdivision plat approval or a building permit, were taxes rather than regulatory fees.130 It has also been observed that impact fees in Con- necticut may not be imposed without an enabling act.131 Connecticut law does not explicitly authorize impact fees, and the Connecticut Supreme Court has struck down a development fee to recoup the cost of a town’s supervision of infrastructure work in new subdivisions, stating that the statutes did not authorize fees for this purpose as they did for processing subdivision applica- tions and inspecting site work.132 One other basis relied upon by the courts in deter- mining the invalidity of an impact fee absent express statutory authority is preemption by state law. The New York Court of Appeals struck down a local trans- portation impact fee ordinance because the local fee was preempted by the state’s comprehensive and detailed regulatory scheme in the field of highway funding.133 In that case, the court held that the legislature had implic- itly limited the amount a town could raise by taxation for highway purposes. 128 Mayor and Board of Aldermen, City of Ocean Springs v. Homebuilders Ass’n of Miss., Inc., 932 So. 2d 44 (2006). 129 LA. CONST. art. 7, § 2; Op. Att’y Gen. No. 05-0282 (Aug. 15, 2005); Op. Att’y Gen. No. 98-447 (Nov. 30, 1998). 130 Home Builders Ass’n of Greater Des Moines v. City of West Des Moines, 644 N.W.2d 339 (2002). Nevertheless, the facts of these cases should be scrutinized for applicability to the structure of the particular fee. In the Des Moines case, the court analyzed the difference between a tax and a fee, holding that a tax is a charge to pay the cost of government without regard to special benefits conferred (Id. at 346), while a fee may be charged when based on a special benefit conferred on the person paying the fee (Id. at 347). The court left open the possibility that the fee may have been valid if it had been premised on the special benefits bestowed on the developers and builders and limited to the value of those special benefits. Id. at 349. 131 John G. Rappa, Case Law Regarding Development Impact Fees, Connecticut General Assembly Office of Legislative Re- search Report, No. 2002-R-0902 (Nov. 26, 2002), available at http://www.cga.ct.gov/2002/olrdata/pd/rpt/2002-R-0902.htm. 132 Id.; Avonside Inc. v. Zoning and Planning Comm’n of Avon, 153 Conn. 232, 215 A.2d 409 (1965). 133 Albany Area Builders Ass’n v. Town of Guilderland, 74 N.Y.2d 372, 547 N.Y.S.2d 627, 546 N.E.2d 920 (1989); Frank J. Wozniak, Statutes or Ordinances, 97 A.L.R. 5th 123 (2002).

18 B. Nexus and Proportionality The U.S. Supreme Court decisions in Nollan v. Cali- fornia Coastal Commission134 and Dolan v. City of Ti- gard,135 “imposed a national uniformity on the police power common law with respect to development condi- tions, particularity concerning the necessary connection between the exaction or condition and the land devel- opment project that is subject to such an exaction or condition.”136 1. Nollan and Nexus At least 20 states arguably have either expressly au- thorized or judicially implied the authority to enact de- velopment impact fees for infrastructure development and improvement, including transit purposes. Another 14 states prohibit the use of such fees for transit pur- poses by exclusion. Express legislation obviously re- solves many authority issues; however, constitutional- ity issues may still arise. Various judicial standards and tests have been developed to determine the constitu- tional validity of imposing exactions. Among the most significant cases with respect to this issue is the now famous Nollan case, decided by the United States Su- preme Court in 1987. In Nollan, the Coastal Commis- sion granted a permit to the Nollans to replace a small bungalow on their beachfront lot with a larger house upon the condition that they allow the public an ease- ment to pass along the back of their lot adjacent to the high tide line in order to facilitate access to the ocean and a public park. The Court noted its historic recognition that land- use regulation does not affect a taking if it “substan- tially advances legitimate state interests” and does not “deny an owner the economically viable use of his land.”137 It further noted that its cases made clear that a broad range of governmental purposes and regulations satisfies those requirements.138 However, the Court re- quired that there be an “essential nexus” between the public purpose of the land-use action and the conditions attached to the approval of the development.139 The public purpose sought to be advanced by the Commission was to ameliorate the blockage of the view of the ocean caused by the new development. The Court conceded that if the Commission had, in the exercise of its police powers, imposed as a condition some protec- tion of the public’s ability to see the beach notwith- standing the construction of the new house, the imposi- tion of the condition would have been constitutional. But an easement along the beach itself did nothing to 134 483 U.S. 825, 107 S. Ct. 3141, 97 L. Ed. 2d 677 (1987). 135 512 U.S. 374, 114 S. Ct. 2309, 129 L. Ed. 2d 304 (1994). 136 David L. Callies, Exactions, Impact Fees and Other Land Development Conditions, AMERICAN INSTITUTE OF CITY PLANNING, PROCEEDINGS OF 1998 NATIONAL PLANNING CONFERENCE (1998). 137 Id. at 834. 138 Id. 139 Id. at 834, 837. advance the purpose of allowing a better view of the beach. The Court stated, “the evident constitutional propriety disappears [if] the condition substituted for the prohibition utterly fails to further the end advanced as the justification for the prohibition.”140 The elimina- tion of this “essential nexus” thus amounted to “the obtaining of an easement to serve some valid govern- mental purpose, but without payment of compensa- tion.”141 To avoid payment of compensation under the Fifth Amendment’s property clause, regulation through the police power must substantially advance a legiti- mate state interest, and the connection between the state interest and the regulation becomes the focus of the inquiry. 2. Dolan and Proportionality In 1994, a question left unanswered in Nollan was resolved by the United States Supreme Court’s decision in Dolan v. City of Tigard. 142 The issue addressed in Dolan was “the degree of connection between the exac- tions [imposed by the city] and the projected impact of the proposed development.”143 The case reached the Su- preme Court after the Oregon Supreme Court held that the City of Tigard could, as a condition of a building permit, require that part of the Dolan’s land be dedi- cated for flood control and traffic improvements, specifi- cally the dedication of a bike path and green- way/floodplain easements to the city. The Court first determined that an essential nexus did exist between the permit conditions and the legitimate public inter- ests in dealing with storm water run-off and reducing traffic congestion.144 However, the Court struck down the permit conditions as unconstitutional because the city’s findings concerning the projected stormwater runoff and generation of additional vehicular traffic were simply not “constitutionally sufficient to justify the conditions imposed by the city on petitioner’s build- ing permit.”145 The Court adopted a “rough proportionality” test, holding that, “The city must make some sort of indi- vidualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.”146 Applying this test to Dolan’s property, the Court concluded that the city’s permit conditions exceeded the requirements of this nexus/rough proportionality test. The Court found that, while there was no doubt that a larger retail sales facil- ity would generate additional traffic: The city has not met its burden of demonstrating that the additional number of vehicle and bicycle trips generated by the petitioner’s development reasonably relate to the 140 Id. at 837. 141 Id. 142 512 U.S. 374, 114 S. Ct. 2309, 129 L. Ed. 2d 304 (1994). 143 Id. at 386. 144 Id. at 387–88. 145 Id. at 389. 146 Id. at 391.

19 city’s requirement for a dedication of a pedestrian/bicycle pathway easement. The city simply found that the crea- tion of the pathway “could offset some of the traffic de- mand…and lessen the increase in traffic congestion….” No precise mathematical calculation is required, but the city must make some effort to quantify its find- ings…beyond the conclusory statement that it could offset some of the traffic demand generated.147 Likewise, the Court found the city’s demand for a public easement for its greenway system had not clearly established proportionality and thus amounted to emi- nent domain.148 The constitutional problem in both in- stances was “the loss of [Dolan’s] ability to exclude oth- ers,” identified by the Court as “one of the most essential sticks in the bundle of rights that are com- monly characterized as property.”149 The Court in Dolan summarized “representative” state cases that address the necessary connection be- tween the required dedication and the proposed devel- opment. The U.S. Supreme Court categorized the vari- ous state standards as 1) generalized statements, deemed by the Court to be “too lax to adequately protect the petitioner’s right to just compensation if her prop- erty is taken for a public purpose”;150 2) the “specific and uniquely attributable” test under which a local govern- ment must demonstrate that its exaction is directly proportional to the specifically created need;151 and 3) the intermediate position, requiring a municipality to show a “reasonable relationship” between the required dedication and the impact of the proposed develop- ment.152 The constitutional standards developed by the courts are often incorporated into state impact fee enabling acts. Development fees assessed by a municipality in the State of Arizona are subject to the following re- quirements: • “Development fees shall result in a beneficial use to the development”; • Monies received from development fees assessed must be placed in a segregated fund; • The schedule of fees shall be predetermined by the municipality; • “The amount of any development fees assessed [m]ust bear a reasonable relationship to the burden imposed upon the municipality to provide additional necessary public services to the development. The mu- nicipality, in determining the extent of the burden im- 147 Id. at 395–96. 148 Id. at 393. 149 Id. 150 Id. at 389–90. 151 Id. The Dolan Court rejected the exacting scrutiny of the “specifically and uniquely attributable” test as excessive, “given the nature of the interests involved.” 152 Dolan, 512 U.S. at 391–92 (“we think the ‘reasonable re- lationship’ test adopted by the majority of the state courts is closer to the federal constitutional norm than either of those previously discussed.”). posed by the development, shall consider, among other things, the contribution made or to be made in the fu- ture in cash or by taxes, fees, or assessments by the property owner towards the capital costs of the neces- sary public service covered by the development fee”; • Fees are to be assessed in a nondiscriminatory manner; and • “In determining and assessing a development fee, the municipality shall take into account all public infra- structure provided by the district and capital costs paid by the district for necessary public services and shall not assess a portion of the development fee based on the infrastructure or costs.”153 Another example is the Rhode Island Development Impact Fee Act, which requires a governmental entity considering the adoption of impact fees to conduct a needs assessment for the type of public facility for which impact fees are to be levied. The needs assess- ment shall identify levels of service standards, project public facilities capital improvement needs, and distin- guish existing needs and deficiencies from future needs. The data sources and methodology upon which the im- pact fees are based must be made available to the pub- lic, and the amount of each impact fee shall be based on actual or reasonable estimates of the cost of public facil- ity expansion or improvements.154 An impact fee in Rhode Island must meet the follow- ing requirements: • The amount of the fee must be reasonably related to or reasonably attributable to the development’s share of the cost of infrastructure improvements made neces- sary by the development; and • The impact fees incurred must not exceed a pro- portionate share of the costs incurred or to be incurred by the governmental entity in accommodating the de- velopment.155 Impact fees in Colorado must be made in accordance with a schedule that is legislatively adopted, generally applies to a broad class of property, and is intended to defray the projected impacts on capital facilities caused by proposed development. Further, the fee is required to be proportional to the impacts caused by the new development and may not address existing deficiencies: A local government shall quantify the reasonable impacts of proposed development on existing capital facilities and establish the impact fee or development charge at a level no greater than necessary to defray such impacts directly related to the proposed development. No impact fee or other similar development charge shall be imposed to remedy any deficiency in capital facilities that exists without regard to the proposed development.156 153 ARIZ. REV. STAT. ANN. § 9-463.05. 154 R.I. GEN. LAWS § 54-22.4-4(a)-(c). 155 R.I. GEN. LAWS § 54-22.4-4(d). 156 Id.

20 This language of reasonable relationship and propor- tionality directly addresses the concerns relating to eminent domain issues. 3. Russ Building Partnership While there is a relatively large body of case law re- lating to “transportation” impact fees, this is not so with respect to impact fees for transit.157 Nevertheless, given the lack of case law arising out of transit impact fees, other courts may look to this body of case law for guid- ance. The leading case surrounding the use of develop- ment impact fees for transit is Russ Building Partner- ship v. City and County of San Francisco (“Russ I”).158 In this case, developers of new office space in downtown San Francisco sued for declaratory judgment that the TIDF imposed by the city 1) violated state constitu- tional limitations on collection of a “special tax,” and state and federal constitutional protections of equal protection and substantive due process and 2) constituted double taxation. Further, the plaintiffs challenged the amount of the fee. In May 1981, the City and County of San Francisco enacted Ordinance No. 224-81 “in order to be able to provide public transit services for new development in the downtown area….” The ordinance conditioned the issuance of a building permit or certificate of completion on any office building development in the downtown area upon payment of a transit fee. The fee was de- signed to provide revenue for the San Francisco Muni system to offset the anticipated increased costs to ac- commodate new riders during peak commute hours generated by such office building development. The fee was fixed at $5 per square foot of new office space. Under the ordinance, the fee was payable by each developer either in a lump sum at the end of develop- ment or amortized and paid in installments over several years. The fee was calculated to take into account in- creased transit costs that would accrue over the 45-year useful life of each office building.159 In May 1981, the Russ Building plaintiff filed a class action suit against the city to have the ordinance de- clared invalid on its face and in application. The trial court held that the fee was not an impermissible tax but a “debatably rational” development fee.160 a. Unconstitutional “Special Tax.”—The plaintiffs argued that the TIDF was not a legitimate development fee because the $5 per square foot fee exceeded the rea- sonable cost of the increased services to be provided and thus constituted a “special tax” requiring voter approval under Article XIII, Section 4, of the California Constitu- tion. The court made reference to its own definition of “special tax” as a tax “levied for a specific purpose rather than a levy placed in the general fund to be util- 157 See Frank J. Wozniak, Validity, Construction and Appli- cation of Road or Transportation Impact Fee Statutes or Ordi- nances, 97 A.L.R. 5th 123 (2002). 158 199 Cal. App. 3d 1496, 246 Cal. Rptr. 21 (1987). 159 Id. at 1503. 160 Id. ized for general governmental purpose.”161 While the Russ I court noted that the ordinance did exact a fee for a specific purpose, it determined that the TIDF is not a tax at all. First, the TIDF is not intended to replace lost revenues but rather is triggered by the voluntary deci- sion of a developer to construct office buildings and is “directly tied” to the increase in ridership generated by such construction.162 Second, the TIDF is limited to the estimated costs involved to serve the increased rider- ship and is not earmarked for general fund purposes. The court remarked upon the connection between the role of impact fees and tax relief in California when it added, “Such a construction will not interfere with giving voters effective property tax relief, the central purpose behind article XIII A of the California Consti- tution.”163 The court also considered the similarity be- tween a development fee and a special assessment in California law and concluded that the difference was irrelevant: Whether we term the transit fee a special assessment or a development fee, as applied in this context, the charge levied is directly related and limited to the cost of in- creased municipal transportation services engendered by the particular development, and it is not a “special tax” for purposes of section 4.164 b. Equal Protection.—Plaintiffs claimed that the or- dinance discriminated against office buildings con- structed after 1979 and arbitrarily singled out commer- cial buildings. The TIDF, as an economic regulation, was presumed to be constitutional; the only determina- tion to be made by the court was whether the TIDF bore a rational relationship to a legitimate state purpose. The court made reference to the language of the ordi- nance that found, in reliance on the Downtown Plan Environment Impact Report, that “future increases in demand for public transit service [will be] attributable directly to new development in the downtown area in- creasing the number of persons using the Municipal Railway during peak periods.”165 As a result of the evi- dence presented, the court found the city’s determina- tion—that office space is the primary generator of tran- sit trips—to be rational and thus rejected the equal protection claim because the ordinance was shown to be “directly and additionally related to legitimate govern- mental goals.”166 c. Due Process.—The plaintiffs charged that the TIDF ordinance violated substantive due process because it is unreasonable to require developers to underwrite public transit costs over a 45-year period, claiming it was not possible to estimate increased transit costs that far into the future. The city relied on expert testimony to dem- onstrate that long-term cost projects are accepted in a 161 Id. at 1504, citing to City and County of San Francisco v. Farrell, 32 Cal. 3d. 47, 57, 184 Cal. Rptr., 684 P.2d 935 (1982). 162 Id. at 1505. 163 Id. at 1506. 164 Id. 165 Id. at 1508, citing to Ord. No. 224-81, § 38.2. 166 Id.

21 number of contexts, regardless of whether inflation and other unknown factors affect the accuracy of such pro- jections. The city presented data to support the conclu- sion that “the imposition of a lump sum fee represent- ing increased transit costs over a 45-year period was not arbitrary or unreasonable and was not an unconstitutional taking of plaintiff’s property.”167 d. Double Taxation.—The court found that the TIDF was a development fee and not a tax because the fee “is charged at one time, at the completion of construction of new office space, and does not recur as does a property tax. Furthermore, transit fee is designed specifically to fund Muni maintenance and development, whereas a property tax provides general revenue to cover a wide range of municipal services.”168 The fee is not developed by virtue of property ownership, but rather for the privilege of developing real property. The court held, as a matter of law, that the imposition of the TIDF did not result in double taxation. e. Level of Impact Fee.—The plaintiffs in Russ I con- tended that the city’s impact fee methodology and the assumptions relied upon by the city’s consultants in support of the impact fee amount were not supported by the evidence. The plaintiffs relied upon several argu- ments: • Plaintiffs first attacked the use of the 45-year pro- jection, but the court found that the use of this projec- tion was reasonable and supported by substantial evi- dence. • Plaintiffs challenged the discount rate used in cal- culating the present value of the fee, using an economic forecast that estimated the discount rate over the 45- year projected term rather than for a “snapshot year.” The court disagreed and found there was a rational ba- sis for using this method. • Plaintiffs argued that the failure to include an ad- justment mechanism was unconstitutional; however, the court held that an adjustment mechanism was not constitutionally mandated in this case. • Plaintiffs challenged the data used in the “snap- shot year” of 1980, first with respect to the availability of federal or state grants for capital improvements over the 45-year period and second with respect to the city’s decision not to include off-peak revenues in calculating the TIDF. The court found that the city’s approach to both issues was rational. • The plaintiffs found support from the court with respect to two facets of the methodology: that of the revenue generated by “fast pass” during peak hours (“In order to estimate the revenue likely to be generated by fast pass use, the calculation should be based on the cost per ride paid for at the time the ride is taken.”)169 and the “transfer rate” applied as part of the city’s in- creased costs (“there is no evidence of increased cost to Muni to operate [feeder] lines. This is the only relevant 167 Id. at 1509. 168 Id. 169 Id. at 1515. consideration, since the fee imposed by the city must not be more than needed to provide the improvements and services required by the development”).170 Neverthe- less, the court found these errors to be harmless be- cause, even with the necessary adjustments, the $5 fee was still well below the estimated per-square-foot re- ductions. The California Supreme Court accepted two issues on appeal from Russ I: whether extrinsic evidence is relevant for interpreting the building permit and whether the permit gave adequate notice to appellants of the developer fee imposed after the permits were is- sued.171 In Russ II,172 plaintiffs argued that the TIDF was retroactively applied, in violation of the vested rights doctrine, to office building projects that had be- gun before the ordinance’s enactment. At issue was the language in the building permits issued prior to adop- tion of the TIDF ordinance that conditioned issuance of the permits upon the developers’ participation “in a downtown assessment district or similar fair and ap- propriate mechanism, to provide funds for maintaining and augmenting transportation service, should such a mechanism be established by the city.”173 The Court of Appeals in Russ I had held that the evidence presented did not support the conclusion that plaintiffs had adequate notice that they might have to contribute for future transit service.174 The court in Russ II differed, noting that the evidence supported the argument that the transit mitigation condition lan- guage was intended to encompass whatever financing mechanism would be developed as a result of the city’s continued study of the transit funding problem. The court also found that at the time their permits were issued, the plaintiffs understood they would be required to pay some amount to fund increased transit demands as a condition to developing their properties. With re- spect to this issue, the California Supreme Court re- versed the Court of Appeal. 175 170 Id. at 1516, citing to Trent Meredith, Inc. v. City of Ox- nard, 114 Cal. App. 3d 317 (1981). 171 Russ Bldg. P’ship v. City and County of San Francisco, 236 Cal. Rptr. 403, 735 P.2d 444 (1987). 172 Russ Bldg. P’ship v. City and County of San Francisco, 44 Cal. 3d 839, 244 Cal. Rptr. 682, 750 P.2d 324 (1988). 173 Id. at 326. 174 Russ Bldg. P’ship v. City and County of San Francisco, 188 Cal. App 3d 977, 234 Cal Rptr. 1, at 9 (1987). 175 Russ Bldg. P’ship v. City and County of San Francisco, 44 Cal. 3d 839, 244 Cal. Rptr. 682, 750 P.2d 324 (1988). See also Blue Jeans Equities West v. City and County of San Francisco, 3 Cal. App. 4th 164, 4 Cal. Rptr. 2d 114 (1992), where plaintiff developers unsuccessfully challenged the imposition of the TIDF, on the basis that their project was located away from the traditional downtown area. The California Appeals Court up- held the fee based on minimum “rational relationship” test rather than more stringent “heightened scrutiny” Nolan test, stating that the Nolan analysis is applicable only to possessory takings rather than regulatory takings.

Next: V. ALTERNATIVES »
Uses of Fees or Alternatives to Fund Transit Get This Book
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TRB’s Transit Cooperative Research Program (TCRP) Legal Research Digest 28: Uses of Fees or Alternatives to Fund Transit explores the use of impact fees for transit in the United States. The report examines policy and legal considerations relating to the use of impact fees and developer exactions for transit, reviews various methodologies currently in use, and identifies cases that exemplify strategies transit agencies may pursue when considering impact fees as an alternative funding source.

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