This post continues the prior, discussing the legal problems with the County of Maui’s proposed “affordable housing” impact fee ordinance.  The details of the proposed ordinance are reported here.

The blanket requirement that a property owner who wishes to make reasonable use of his or her property first donate some portion of it to the pool of affordable housing, or instead pay a cash fee, would be subject to challenge under both Hawaii Const. art. 1 § 20, and the Fifth Amendment to the U.S. Constitution.  The courts have established two requirements before an exaction may be imposed as a mandatory condition of development, “nexus” and “rough proportionality.”

First, there must be a close connection (also known as a “nexus”) between the condition imposed on the use of land and the social evil that would otherwise be caused by the unregulated use of the owner’s property.  See Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987). 

Absent a nexus, a permit condition is “not a valid regulation of land use but ‘an out-and-out plan of extortion.’ ”  Id. (citations omitted).  In other words, the courts are worried that impact fees, in-lieu fees, and development exactions would become a form of “pay to play” where local governments are tempted to take advantage of the fact that a property owner seeks permits, and treat it as an opportunity to leverage land, other property, or cash in order to address other impacts not caused by the property owner. 

The constitutional protections are designed to keep property owners from being forced to shoulder a disproportionate share of public burdens, if it cannot be shown individually that they caused the problem.  The protections are “designed 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.”  Armstrong v. United States, 364 U.S. 40 (1960). 

In other words, if there is a shortage of affordable housing on Maui, the proposed bill’s requirements must be related to some condition the developer created.  The proposed bill makes no attempt to establish this factual nexus.  There are many factors that have resulted in the issue the Council seeks to address, not just developers. 

The second requirement is that there must be a close “fit” between the development exaction and the burdens created by a proposed development plan.  See Dolan v. City of Tigard, 512 U.S. 374 (1994).  As the Supreme Court held, if there is a “nexus” as required by Nollan, there must also be a “degree of connection between the exactions and the projected impact of the proposed development.”  Id. at 386.  In other words, there must be “rough proportionality” — “some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.”  Id. at 391.

Under this second requirement, it is difficult to imagine how the proposed bill would pass judicial scrutiny.  It proposes blanket rules and percentages, not “individualized determination[s] that the required dedication is related both in nature and extent to the impact of the proposed development.”  The law requires an examination of whether this development is causing a particular problem, and then only allows the government to address the problem in a proportional manner by imposing mitigation measures on a developer.

     Continue Reading ▪ Big Problems With Maui’s Proposed “Affordable Housing” Exaction Ordinance (pt II)

As reported here, the County of Maui is attempting to address a shortage of “affordable housing” by considering a new ordinance requiring property owners who wish to develop their land to first commit a percentage of it to “affordable housing” or pay a cash “in-lieu” fee.

There are two major legal infirmities with the proposal, which is, in essence, an impact fee:  First, Hawaii’s counties have no power to enact an “affordable housing” impact fee, or require affordable housing exactions.  Second, the bill does not conform to constitutional requirements of close tailoring to mitigate any impacts on the stock of affordable housing that particular developments may cause. 

This post deals with the first issue, the power of the counties.  The constitutional issue is examined in a separate post.

REASONABLE USE OF PROPERTY IS A FUNDAMENTAL RIGHT

All questions regarding regulation of property should start at the same point: that the right to own and make beneficial use of property is a fundamental constitutional right. 

The framers of the U.S. Constitution and the Hawaii Constitution both recognized that the ability to use property is the building block to all other freedoms, and the government may not place unreasonable conditions on that right.  As noted by the U.S. Supreme Court:

The right to build on one’s own property – even though its exercise can be subjected to legitimate permitting requirements – cannot remotely be described as a “governmental benefit.”

Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987).  An “exaction” (a forced donation of land) or “impact” or “in-lieu” fees (cash payments instead of land exactions), may not impermissibly burden the right to build on one’s own property. 

HAWAII COUNTIES ONLY HAVE AUTHORITY TO ENACT IMPACT FEES WITHIN THE LIMITATIONS OF HRS § 46-142

Counties have been delegated a limited power to enact impact fees, but have no power to enact impact fees regarding “affordable housing.” 

An “impact fee” is defined by state law as:

[t]he charges imposed upon a developer by a county or board to fund all or a portion of the public facility capital improvement costs required by the development from which it is collected, or to recoup the cost of existing public facility capital improvements made in anticipation of the needs of a development.

Haw. Rev. Stat. § 46-141 (Supp. 2005).  The power of the counties to enact impact fee requirements is narrow, and must be exercised within the scope of the statutory authority.  Section 46-142 is the critical guideline for what the counties may and may not do:

(a) Impact fees may be assessed, imposed, levied, and collected by:

(1) Any county for any development, or portion thereof, not involving water supply or service; or

(2) Any board for any development, or portion thereof, involving water supply or service;

provided that the county enacts appropriate impact fee ordinances or the board adopts rules to effectuate the imposition and collection of the fees within their respective jurisdictions.

(b) Except for any ordinance governing impact fees enacted before July 1, 1993, impact fees may be imposed only for those types of public facility capital improvements specifically identified in a county comprehensive plan or a facility need assessment study.  The plan or study shall specify the service standards for each type of facility subject to an impact fee; provided that the standards shall apply equally to existing and new public facilities.

Haw. Rev. Stat. § 46-142 (1993 & Supp. 2005).

HRS SECTION 46-142(B)

Analysis of the statutory authority in a four-step process demonstrates that the proposed affordable housing bill falls outside the permissible scope of the County’s authority to enact impact fee laws.

Subsection (a) provides that impact fees “may be assessed” by the counties for development.  Thus, we start with a presumption that counties generally have the power to enact impact fee requirements, provided they do so by ordinance or agency rule.

However, the authority delegated to the counties by the statute is not unlimited or lacking specific guidelines.  Ultimate sovereignty, of course, rests with the people of Hawaii.  Haw. Const. art. I, § 1.  The people have delegated their power via the Hawaii Constitution to the state Legislature, which in turn has the power to establish counties.  See Haw. Const. art. VIII, § 1. 

Thus, a county is not a sovereign entity, but rather a political subdivision that must remain within the confines of whatever authority is delegated to it by the Legislature, no matter how narrow.

With respect to impact fees, those limitations are contained in Haw. Rev. Stat. § 46-142(b), so the second step in determining the scope of the County’s impact fee authority is focused on this critical language: “impact fees may be imposed only for those types of public facility capital improvements specifically identified in a county comprehensive plan or a facility needs assessment study.” 

Thus, if an impact fee purports to be for a “public facility capital improvement” — however that is defined — the County has no power to enact it.

A County has no power to enact affordable housing impact fees because the term “public facility capital improvement” is defined in section 46-141 to expressly exclude affordable housing:

“Public facility capital improvement costs” means 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 capital improvement costs do not include expenditures for required affordable housing, routine or periodic maintenance, personnel, training, or other operating costs.

Haw. Rev. Stat. § 46-141 (1993 & Supp. 2005). 

Thus, a County’s general power to enact impact fees in subsection (a) of section 46-142 is expressly curtailed in subsection (b). 

Other sections of chapter 46 – the state law that establishes the limited powers of the counties – similarly do not provide any authority to assess impact fees, in-lieu fees, or exactions for affordable housing.  These provisions permit impact fees or exactions for other subjects, or limit the powers of the counties to address affordable housing issues by tools other than impact fees. 

Section 46-6 permits the counties to impose exactions, but only for “parks and playgrounds.”  Affordable housing exactions are not permitted.  Haw. Rev. Stat. § 46-6 (1993). 

Similarly, subdivision approval may be conditioned on a property owner’s agreement to provide access to beaches.  Haw. Rev. Stat. § 46-6.5 (1993).  There is no authority for affordable housing impact fees or exactions. 

Other portions of chapter 46 permit the counties to address affordable housing issues, but do not permit them to do so by enacting impact fee or exaction requirements.  For example, sections 46-15.1 and 15.2 permit the counties to develop and fund affordable housing projects either as public projects or in public-private partnerships with developers.  Counties may also issue bonds.  There is no authority in these sections, however, permitting counties to use impact fees or exactions to accomplish these goals.

The Development Agreement statute, Haw. Rev. Stat. § 46-121 et seq., permits the counties to enact development agreement ordinances providing a process for a county to enter into a voluntary agreement with a developer which may include affordable housing.

There is no authority in those sections allowing counties to impose mandatory requirements.

The constitutional problems with the bill are detailed in a separate post. 

    Continue Reading ▪ Big Problems With Maui’s Proposed “Affordable Housing” Exaction Ordinance (pt I)

The US Supreme Court today denied review to an appeal seeking to overturn Olympia, Washington’s requirement that a developer pay a “traffic impact fee” as a condition of developing a four-story office building.  In Drebick v. City of Olympia, the city demanded the developer pay the traffic impact fee even though the proposed office building was on the edge of town, and would not affect traffic. 

Exactions are land use law’s version of “pay to play.”  Local governments often condition development permits on a property owner’s agreement to “donate” land (exactions) or cash in-lieu fees (aka “impact fees”).  These demands only pass muster under the Fifth Amendment when they meet two requirements:

1.  They must have a logical connection (nexus) to the proposed development, and

2.  They must be be roughly proportional to the impact anticipated to be created by the proposed use. 

These requirements were first enunciated by the Court in Nollan v. California Coastal Comm’n and Dolan v. City of Tigard, respectively. 

They are designed to limit the obvious potential for abuse: if the government has unfettered ability to condition use permits on the owner’s concession to turn over property or money, the result, as the Court pointed out in Nollan, would be an “out-and-out plan of extortion,” and an impermissible burden on an owner’s right to make reasonable use of his or her own property. 

An example from my own experience: in a case involving an owner’s request to develop its own property, the head of the planning department testified that permission would not be forthcoming unless and until the owner agreed to give up “the goodies” (his word, not mine) for a public park, which just happened to be the most valuable portion of the parcel.  This illustration highlights another rationale for the exaction limitations — the legitimate concern that exactions would substitute as a compensation-and-due-process-free shortcut to an exercise of eminent domain power.  If the city needed a public park, it should have condemned and paid for it, not exacted it from the owner as a condition of use.  The Nollan/Dolan rules were meant to curb just this sort of demand.

The Drebick petition presented two questions: whether cash in-lieu fees are exempt from Nollan/Dolan, and whether exactions imposed by a legislature are similarly immune(disclosure: Pacific Legal Foundation filed the Drebick petition).

Denials of cert do not establish precedent, so today’s action has no effect on the law in other cases.   

Sidebar: commenting on the decision, PropertyProf Blog cheekily suggests the Court not grant review to another takings case for a few years to permit the lower courts to flush out doctrine, and to allow legal scholars to focus on other interests for a while.  Not to worry: the Kelo-Lingle-San Remo triad may have dampened whatever mojo the federal courts had for eminent domain and regulatory takings cases, even though there remain many issues, like those in the Drebeck petition, deserving of resolution.  In-lieu fees are a favorite of local governments (especially in Hawaii), even though they are of questionable constitutionality.

     Continue Reading ▪ Cert Denied in Exaction Appeal