On June 25, the U.S. Supreme Court issued an opinion in the case of Koontz v. St. Johns River Water Management District with potentially noteworthy ramifications for property owners and developers.  The decision provides some clarification in an area that has troubled various state and federal courts since the Supreme Court decided the duo of Nollan v. California Coastal Commission and Dolan v. City of Tigard approximately two decades ago: does a government’s demand for a commitment of money or services in exchange for a development approval comport with the constitution’s protection against takings of private property without just compensation?

            Nollan and Dolan addressed the situation where a governmental permitting authority demands a dedication of property—such as an easement for public use—in exchange for the property owner’s obtaining a development approval (i.e. a site plan approval, conditional use permit, rezoning, etc.).  Such demands are frequently termed “exactions.”  Out of Nollan and Dolan came a two-pronged “heightened scrutiny” rule related to such demands: in cases where the government conditions approval on dedications of property, the government must demonstrate (1) a nexus, or tailoring, between the condition imposed and the government’s purpose in imposing the condition, and (2) a rough proportionality between the nature and extent of the required dedication and the proposed development.  Nollan and Dolan left two questions unanswered, however.  First, does a property owner of whom an exaction is demanded—but who refuses to consent to the condition—have a claim under the Takings Clause?  And second, is a government’s demand of money, services, or other non-real property interests in exchange for a development approval subject to heightened scrutiny? 

            June’s Supreme Court decision answers these questions.  In Koontz, a Florida property owner sought a permit to develop a small portion of his property, which would result in the reduction of a wetland area.  The permitting authority offered such a permit, with the condition that the landowner provide funds for the purpose of constructing off-site wetlands to replace those that would be impacted by the proposed development.  The landowner refused to comply with the condition, and sought judicial relief.  The Florida Supreme Court held that takings law was inapplicable where the permit was not issued because of the landowner’s refusal to comply with the condition, and that the dedication of funds could not be an unconstitutional condition as in the case of a property interest.

            The U.S. Supreme Court overturned the Florida court on both inquiries. First, all nine Supreme Court justices agreed that the denial of a permit on the grounds that the applicant failed to accede to a condition was equivalent to the issuance of a permit with conditions, thus bringing the matter within the purview of the unconstitutional conditions doctrine.  Second, a majority of the justices, in an opinion authored by Justice Alito, found the government’s demand for money in exchange for a development approval to be an unconstitutional condition violating the Fifth Amendment Takings Clause.  While the majority stated that its decision would have no impact on “taxes, user fees, and similar laws and regulations that may impose burdens on property owners,” the decision’s full effect with respect to monetary exactions is not totally clear.

            In Colorado, Koontz reaffirms some recent statutory law but has the potential to alter other established law.  In 2001, the Colorado Supreme Court in Krupp v. Breckenridge Sanitation District intimated that monetary exactions would not be subjected to heightened scrutiny because money was sufficiently distinct from real property.  Krupp also found that legislatively-enacted, broadly-applicable fees could not be subjected to the Nollan and Dolan tests, while ad hoc, administratively-crafted fees applied differentially to individual property owners could be subjected to such heightened scrutiny.  Also in 2001, the Colorado legislature enacted the Impact Fee Act, §§ C.R.S. 29-20-102, 104.5, authorizing local governments to condition development approvals on the payment of fees for public improvements.  Under the Impact Fee Act, impact fees must be imposed on a legislative, broadly-applicable basis, and not in an ad hoc manner.  Furthermore, in 2009, the Colorado legislature enacted the Regulatory Impairment of Property Rights Act (RIPRA), C.R.S. § 29-20-201 et seq., codifying the essential nexus and rough proportionality tests for ad hoc discretionary conditions requiring applicants to dedicate property, pay money, or provide services, resulting in a partial invalidation of Krupp.

            In essence, RIPRA was a Colorado precursor to Koontz, since it applied Nollan/Dolan-type scrutiny to exactions of money and services.  Koontz thus simply reinforces RIPRA with respect to exactions.  However, Koontz did not address the legislative-ad hoc distinction as it pertains to exactions. The majority opinion’s suggestion that heightened scrutiny is inapplicable to taxes and user fees does not rule out the possibility that legislatively-enacted impact fees or other permit fees could in fact be subjected to the essential nexus and rough proportionality tests.  The dissenters noted the majority’s silence on this matter and predicted that even legislatively-enacted fees could be subjected to heightened scrutiny in the future.

            In practice, Koontz’s effect is likely to be limited.  Especially in light of many Colorado jurisdictions’ reliance on individually-negotiated land use arrangements such as planned unit developments and development agreements, many property owners and developers rely on their ability to dedicate land, money or services to achieve more favorable entitlements from local governments.  Furthermore, most developers or property owners recognize that challenging such exactions is often more time consuming and costly than the exactions themselves.  Still, however, Koontz—which at least places a heavier litigation burden on governments seeking exactions—may provide some supplemental negotiating power for permit applicants to mitigate the extent to which conditions are imposed on local governments’ land use approvals.