Any good developer knows that it must find a way to coexist with the state and local governments. And, any well-run government entity knows that it must coexist with the development community, which ultimately is the founder of its feast and the source of nearly all its revenue through the increase in value of the tax based caused by development. But local governments are subject to pressures from the electorate who demand increasingly inconsistent outcomes in the form of increased services and lower taxes.
Elected officials, caught between the rock and the hard place naturally look for some way to relieve the pressure, and tend to turn to exactions from the development community. Exactions are fees, dedications of land and requirements to build sidewalks, roads and other infrastructure which are made conditions of development approvals. They are a way to shift the burden of public infrastructure onto the development community, rather than paying for them with tax revenues.
In Sheetz v. County of El Dorado, the US Supreme Court unanimously and clearly reaffirmed its existing regulatory takings precedent and made clear that a monetary exaction which is not rationally related to the impact a project is going to have on the public infrastructure is a taking, regardless of whether it is imposed as an administrative condition, or through a legislative enactment.
Mr. Sheetz wanted to build an 1800 square foot prefabricated home on a vacant lot and was charged a fee of over $23,000.00 for traffic impacts according to a schedule enacted by the County which made no effort to do a project specific analysis of the true impact that traffic generated by Mr. Sheetz’s small house would have upon the surrounding road network. The California Courts said that because the legislature had imposed that fee, rather than the administrative staff, the fee was lawful. The Supreme Court disagreed and overturned the California ruling.
This case is significant for two reasons. First, it makes clear that an unlawful exaction is an unlawful exaction, regardless of how the government imposes it. This is what the North Carolina Courts held in Anderson Creek Partners, L.P., et al v. County of Harnett (2022), and now it is the law of the land. Second, this unanimous decision is a strong reaffirmation of the Court’s existing takings precedent, especially relating to exactions, which are becoming more and more common in North Carolina. In short, a government regulation which destroys the value of a piece of property is a taking. Likewise, a fee or other exaction must be tailored to the actual impact a project will have upon the problem the exaction is designed to address, and be rationally related to that problem.
The Sheetz case reminds us all that policies which require the payment of fees, and perhaps the reservation of a certain number of units for “affordable housing” still must be based upon a rational connection between a real need in the community and the impact the project is going to have upon that need. Given the Sheetz case and the precedent it reaffirms, even legislative bodies like City Councils and County Commissions must show that their policy enactments, fees and payments-in-lieu are tailored to address the actual impact that a project has upon the problem they are trying to address.
It remains to be seen how far these cases will go. For example, if a community cannot show that it lacks affordable housing, or that a particular project will affect the amount of affordable housing available in the community, can it accept a developer’s “voluntary donation” of money for affordable housing as a zoning condition? Can it turn down a zoning request because the developer did not make a voluntary commitment to reserve a portion of its project for “affordable housing?” We look forward to the next decision from either the state or Federal Courts to find out!
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