Supreme Court Compares Some Payments to ‘Extortion’
By Christopher R. Vaccaro
Special to Banker & Tradesman
This month’s unanimous U.S. Supreme Court decision in favor of a California homeowner may have implications for inclusionary development and linkage regulations here in Massachusetts.
California’s El Dorado County is nestled between Sacramento and Lake Tahoe. Much of its area is within a national forest. The county has recently seen significant population growth, with increased burdens on its roads. To address this problem, El Dorado’s board of supervisors adopted a development plan, imposing scheduled traffic impact fees on real estate developments.
When George Sheetz sought to build a modest home there, the county made him pay a $23,000 traffic impact fee to obtain his building permit. He paid the fee under protest, then sued the county in California state court, claiming that the fee violated the Takings Clause in the Fifth Amendment of the U.S. Constitution.
The Takings Clause states that private property shall not be “taken for public use, without just compensation.” Sheetz argued that the impact fee was an unlawful exaction that violated the Takings Clause, because the fee was assessed without a specific determination of the traffic impact of his new home. The California courts rejected Sheetz’s claim, ruling that he could not prevail because the fee was imposed by a schedule developed through legislative action, instead of being assessed on an individual discretionary basis.
The U.S. Supreme Court agreed to hear Sheetz’s case, and issued a unanimous decision, authored by Justice Amy Coney Barrett, vacating the California judgment and remanding the case to the state’s appellate court. The county now must justify the imposition of the $23,000 traffic impact fee on Sheetz’s new home.
Various statements appearing in the Sheetz decision are noteworthy. The Supreme Court began its analysis by declaring that the Takings Clause protects “individual property owners from bearing public burdens which . . . should be borne by the public as a whole.”
Payments Must Roughly Match Effects
The court recognized that states have substantial authority to regulate land use, and governments can place conditions on land-use permits that serve legitimate police-power purposes. For example, a municipality’s requirement that a developer transfer property to the municipality for road improvements is acceptable, if designed to mitigate anticipated traffic congestion.
However, according to the court, if such conditions are unconnected to legitimate land-use interests, they “amount to an out-and-out plan of extortion.”
The Supreme Court justices cited a two part test to measure the constitutionality of such permit conditions. First, the conditions must have an “essential nexus” to the government’s land-use interest. Second, the conditions must have “rough proportionality” to the development’s impact on that interest.
The court suggested that permit conditions that require landowners to pay monetary exactions that are more than necessary to mitigate harms caused by a development, can violate the Takings Clause.
Given this analysis, it may be worthwhile to examine local land-use regulations that require developers to make linkage payments or create affordable housing to obtain permits.
These policies are common in Massachusetts, particularly in Boston, which adopted a linkage policy for commercial developments during the 1980s.
Will Boston’s Fees Be Challenged?
Boston’s program currently applies to projects having more than 50,000 square feet of space. Developers are required to pay $30.78 per square foot for lab space and $23.09 for other commercial uses, in increases approved in 2023 that are being phased in during 2024 and 2025. This program has raised nearly $300 million since its inception.
Boston’s inclusionary development policy (IDP), established in 2000, is also of interest. Until recently, Boston’s IDP generally required residential developers of projects having 10 or more units to set aside 13 percent of the units as affordable housing. Boston amended its IDP last year to increase this obligation. The number of residential units that trigger the IDP was reduced from 10 to seven, and the required percentage of affordable units can be as high as 20 percent, depending on the project.
The IDP allows for the possibility of developers making cash payments to Boston’s Inclusionary Development Fund, instead of building affordable units, subject to approval by the Mayor’s Office of Housing.
The timing of these changes in Boston is peculiar, given the challenges that developers already face because of higher interest rates and construction costs. In any event, it is debatable whether Boston’s IDP and linkage programs are properly tailored to mitigate harms caused by specific projects. Considering the Supreme Court’s Sheetz decision, a developer may decide to challenge those programs, or similar programs in other communities.
Download the article as seen in Banker & Tradesman on April 29, 2024. Learn more about Christopher R. Vaccaro.