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August 5, 2013

Potential Impacts of Koontz Decision on Local Land Use Decisions

On June 25, 2013, the U.S. Supreme Court issued a ruling on Koontz v. St. Johns River Water Management District, which expands the application of the Nollan v. California Coastal Commission and Dolan v. City of Tigard cases. Nollan and Dolan are milestone cases in land use law that require, respectively, an essential nexus and a rough proportionality between the amount of a government exaction and the impact of a proposed development. An exaction is a local government's request for money, property, or improvements related to a real property development application. The Koontz ruling has the potential to affect how local governments approve new developments, negotiate with developers, and set impact and other fees. However, the decision leaves the precise impacts in these areas unclear.

In 1994, Coy Koontz, Sr. applied for a permit to develop 3.7 acres of a 14-acre parcel in central Florida that contained a substantial proportion of wetlands. As part of his application, Koontz offered to accept a conservation easement over the remaining 11 acres of land. However, the St. Johns River Water Management District indicated that the dedication of 11 acres did not meet its requirements for wetland preservation. Rather, it offered Mr. Koontz two mitigation options: developing only one acre of land and placing the remainder under a conservation easement or developing 3.7 acres but paying for off-site wetland mitigation in addition to providing a conservation easement for the remaining 11 acres of his property. Mr. Koontz rejected both options as too onerous compared to the potential environmental impact of his project. His permit application was then denied, and Mr. Koontz sued the water management district, alleging that the district's decision represented a taking. A taking is, generally, a state appropriation of property without just compensation.

In ruling on this case, the U.S. Supreme Court addressed two questions. First, do Nollan and Dolan conditions apply to the denial of a permit based on an applicant's refusal to meet government conditions proposed during the application process? Second, do Nollan and Dolan conditions apply to monetary exactions? The Court held that the denial of a permit to develop a property based on an applicant's refusal to accept proffered mitigation options does constitute a taking but confirmed that a permit denial with no conditions attached does not constitute a taking. Both the majority and the dissent agreed on these points. Additionally, the Court ruled that Nollan and Dolan apply to monetary exactions, expanding their usage beyond their traditional application to real property. The dissent argued that the reasoning used to apply Nollan and Dolan to monetary exactions brings into question an overly-broad array of taxes and fees charged by local governments.

The decision affirms that local governments do have a role to play in preserving the public interest via land use regulation and exactions. It states that "many proposed land uses threaten to impose costs on the public that dedications of property can offset." Furthermore, the Court specifically outlines the need for exactions. "Insisting that landowners internalize the negative externalities of their conduct is a hallmark of responsible land-use policy, and we have long sustained such regulations against constitutional attack," as stated in the Court's opinion.

However, the decision raises questions about the role of negotiations in the development approval process. Many local governments meet with developers throughout the application process to discuss potential negative impacts and ways that the developer might mitigate them. As a result of the Koontz decision, local governments may need to prove that a proposed exaction meets Nollan/Dolan requirements. Furthermore, it is unclear whether high-level suggestions made by local governments during the negotiation process would be subject to a Nollan/Dolan test, as well as when a mitigation suggestion becomes concrete enough to be considered an exaction. Many local governments do not have capacity to analyze all proposed exactions to the extent that might be required to defend those exactions in cases where a permit is denied after negotiations fail and the developer then files suit. A possible outcome is that local governments may deny projects with potential negative impacts rather than negotiate for mitigation options that might allow the project to move forward.

Another area opened up to question by the decision is the imposition of fees and taxes. The Court defines a monetary exaction as a taking because the water district's proposed exaction was based on "a direct link between the government's demand and a specific parcel of real property." The dissent argues that this definition is so broad that it could even apply to property taxes -- one of the longest-standing sources of revenue for local governments. The majority states that the Koontz decision does not apply to property taxes or interfere with a local government's ability to impose fees and taxes, and that distinguishing between a tax and a taking "is more difficult in theory than in practice." However, it is unclear what level of review legislatively imposed fees will be subject to if they are challenged in court.

In review, the Koontz decision has the potential to substantially impact the development process and also leaves several open questions that may be addressed in future litigation. In the meantime, it appears that local governments will now need to provide analysis of some fees and proposed exactions, ensuring that they are proportional to the potential impact of a project.