Copyright Vanderbilt Law Review May 2009 I. INTRODUCTION: ARE IMPACT FEES LOST IN THE MAZE OF TAKINGS JURISPRUDENCE?
The cost of a new home in swanky Naples, Florida-home of charming shopping districts, lovely white-sand beaches,1 and more golf holes per capita than anywhere else in America2-recently topped $450,000. 3 Included in this cost is a staggering $33,000 impact fee bill from the county.4 Even amidst a meltdown in the housing industry and a severe economic slump, local politicians have refused to reconsider the high fees.5 Impact fees are levied by local governments on new developments to pay a share of the costs of providing public infrastructure for those developments.6 The money is used to improve sewers, roads, parks, and schools and has become increasingly important to local governments.7 For example, Naples's high fees are due, in part, to cuts in revenue at the state level and voters' rejection of a proposed sales tax increase to cover growth-related costs.8
Impact fees are not governments' only tool for financing publicinfrastructure improvements; governments also may use their powers of eminent domain to require land dedications or payments in lieu of dedications.9 Often, a government will demand, as a condition precedent to approving a development project, a "physical exaction" (referring to a land dedication)10 or a "monetary exaction" (referring to a payment in lieu of dedication, also known as an impact fee).11
The Fifth Amendment guarantees that private property shall not be "taken for public use, without just compensation."12 Supreme Court takings jurisprudence, however, is murky; as even Justice Stevens admitted, "[T]he wisest lawyers would have to acknowledge great uncertainty about the scope of this Court's takings jurisprudence."13 Indisputably, judicial review of government-required land dedications-that is, physical takings of private property-is governed by the Takings Clause of the Fifth Amendment.14 Fee imposition does not take, condemn, or appropriate private property in any traditional sense, so it should not trigger the Takings Clause. But takings jurisprudence is not limited to the traditional understanding of taking, condemning, or appropriating property; Justice Holmes famously stated that a government regulation also can become a compensable taking if the regulation "goes too far."15 Much uncertainty remains as to whether impact fees "go too far," and, more fundamentally, whether impact fees should be governed by the Takings Clause at all. Moreover, if the Fifth Amendment has an effect on impact fees, review of the fees will have to fit somewhere in the maze of takings jurisprudence.16
While a unanimous Supreme Court recently cleaned up its muddled takings jurisprudence in Lingle v. Chevron U.S.A., the Court failed to clarify the future of monetary exactions like impact fees.17 In Lingle, 
Chevron brought a takings claim against Hawaii for passage of Hawaii's Act 257,18 which sought to protect independent gasoline dealers by, inter alia, limiting the rent that oil companies could charge lessee-owned stations.19 A lower court struck down the Act, reasoning that it did not "substantially advance a legitimate state interest."20 In overturning the lower court's decision, the Supreme Court bluntly expurgated the "substantially advances" test, claiming it was a due process inquiry that had "no proper place in the Court's takings jurisprudence."21 In so doing, the Court further clarified takings jurisprudence by endorsing four reasonably straightforward categories of takings: physical invasions, deprivations of all economically beneficial use, regulatory takings, and physical exactions.22 Whether monetary exactions fit into any of these four categories, however, is still unclear to scholars and courts.23
The question of which Lingle category, if any, should guide the analysis of impact fees is further muddled by three situations. First, in Eastern Enterprises v. Apfel, a majority of the Supreme Court could not agree on whether regulatory takings analysis is germane to an "ordinary liability to pay money."24 In Eastern Enterprises, the liability derived not from an impact fee but from a government regulation requiring a company to pay retirement benefits to coal miners. The disparate treatment of the Takings Clause by the plurality, the dissent, and Justice Kennedy's concurrence has led commentators to conclude that the mere imposition of a monetary exaction cannot be analyzed as a taking.25 Second, many states make a distinction between legislatively imposed impact fees and fees that are imposed on an adjudicative, ad hoc basis, and they apply different levels of scrutiny to each.26 Commentators disagree whether bifurcation between legislative and adjudicative impact fees is beneficial or even relevant to takings jurisprudence.27 Third, many states analyze monetary exactions using a "dual rational nexus test" that is similar to-but more rigorous than-the heightened scrutiny for physical exactions required by Nollan and Dolan.28
This Note addresses why the assessment of an impact fee should not be subjected to federal takings analysis but should be analyzed under the dual rational nexus test used by most state courts. Part II of this Note reviews the case history of impact fees as a subset of regulatory takings. Part III analyzes the competing approaches used to understand the relationship between impact fees and the Takings Clause. Part TV argues that impact fees have no place in takings jurisprudence and recommends that courts apply the dual rational nexus test-not the Nollan/Dolan heightened scrutiny analysis-to impact fees.
II. BACKGROUND: FROM THE TAKINGS CLAUSE TO IMPACT FEES
Per the Fifth Amendment, governments may not take private property for public use without just compensation.29 "Property" in the context of the Fifth Amendment includes not only chattels and parcels of land but also physical rights related to the property-riparian rights, airspace, and easements-and nonphysical rights related to the property-trade secrets, franchises, and patent rights.30 These rights are among the "entire group of rights inhering in the citizen's [ownership]" protected by the Constitution.31 Of course, property rights have limits; ownership does not always mean absolute dominion.32 An individual's property rights may conflict with the state's right to govern the health, safety, and general welfare of its citizenry.33 When government action "takes" a citizen's property right through its power of eminent domain, the Fifth Amendment demands that the citizen be compensated.34 James Madison, the author of the Takings Clause, likely intended the clause to have narrow legal consequences: compensation would be required only where federal government action effected a direct physical taking of private property.35 The subsequent broadening of this early understanding of direct takings and the Takings Clause is examined in Section A. Section B examines the current, broader understanding of the Takings Clause, which includes regulatory takings, physical exactions and, in some states, impact fees.
A. Brief History of Regulatory Takings and Exactions
In 1880, forty years before the ratification of the Eighteenth Amendment to the Constitution, Kansas amended its own constitution to "forever prohibit" the "manufacture and sale of intoxicating liquors . . . except for medical, scientific, and mechanical purposes."36 The next year, the state prosecuted Peter Mugler, a brewer who defied the ban by manufacturing and selling intoxicating liquors for consumption.37 Mugler argued that he had a vested interest in continuing to manufacture and sell beer and that the amendment, which caused his brewery to drop in value from $10,000 to $2,500, constituted an unconstitutional, uncompensated taking.38 The Kansas Supreme Court disagreed, finding no vested interest and no takings violation.39 On appeal, the U.S. Supreme Court upheld the Kansas ruling and explained that a prohibition on uses of property that the state declared "to be injurious to the health, morals, or safety of the community, cannot, in any just sense, be deemed a taking or an appropriation of property for the public benefit."40 Under this early view, regulations that were reasonably related to a valid public purpose never could constitute a taking.41
A half-century later, the Mugler view was still in effect when the Supreme Court used similar language to uphold comprehensive zoning ordinances. In 1922, the Village of Euclid, Ohio, passed a zoning ordinance limiting property rights to enumerated uses in specifically zoned areas of town.42 A realty company whose land diminished in value on account of the regulations sued to invalidate the ordinance.43 The Court held that only provisions that are "clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare" are unconstitutional.44 The Court explained that it would uphold government zoning regulations so long as the government's rationale for the regulation was "fairly debatable."46 Euclid further demonstrates the historical reluctance of the Supreme Court to extend the Takings Clause to government acts not resulting in direct physical takings of property and a concomitant willingness on the part of the Court to grant to governments broad discretion to regulate public health, morals, and safety despite the negative impact the regulations might have on private property use and value.
Soon after Euclid, the Court began broadening its understanding of the Takings Clause. In the 1920s, Pennsylvania attempted to protect people from the danger of having coal mined from beneath their homes.46 The resulting legislation, however, abrogated a contract that the Pennsylvania Coal Company had made with the plaintiffs allowing it to mine beneath their homes.47 Thus, the legislation completely deprived the company of a valuable estate in land. Justice Holmes famously stated that "[t]he general rule at least is that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking."48 For the first time, the Court recognized the possibility of a regulation effecting an unconstitutional taking.49
For nearly half a century thereafter, when faced with balancing private property rights against public interests, states were left alone to flesh out the bare-boned "goes to far" doctrine.50 Not until Penn Central Transportation Co. v. New York in 1978 did the Supreme Court reenter the Takings Clause fray by enunciating three factors for determining whether a regulatory taking "goes too far." In Penn Central, a New York City statute requiring the preservation of historically and aesthetically important buildings prevented Penn Central Transportation Company from constructing a fifty-five-story office tower atop Grand Central Terminal.51 The Court upheld the statute and held that when governmental regulatory action injurious to a property owner requires just compensation, courts should consider: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct, investment-backed expectations; and (3) whether the nature of the governmental action is a physical invasion or merely a public program adjusting the benefits and burdens of economic life in an attempt to promote the common good.52
The Court has since added two hard-and-fast requirements necessary to find per se takings: (a) there must be an actual, physical invasion of property, no matter the extent or economic impact on the owner;53 and (b) the regulation must deny the landowner completely of all economically beneficial use of her property.54 However, where there is no physical invasion and only partial deprivation of the beneficial use, Penn Central's factors must be weighed.55
The Penn Central factors and the two "per se" rules guide the analysis of three of Lingle' s four takings categories: regulatory takings, physical invasions, and deprivations of all economically beneficial use. The Court has carved out a distinct analysis for the fourth category-physical exactions-an analysis that also has been applied by some states to monetary exactions like impact fees.56
B. Physical Exactions and Nollan and Dolan
Physical exactions are a technique employed by governments to compel developers-by regulation, negotiation, or leverage-to exchange land for permission to develop.57 Rather than merely weighing the Penn Central factors, courts apply heightened scrutiny to physical exactions. For a physical exaction to be permissible, there must be an "essential nexus" between the exaction and the government interest that justifies the denial of the permit,58 and there must be "rough proportionality" between the exaction and the impact of the proposed development.59 Together, the essential nexus test and rough proportionality test constitute Nollan/Dolan heightened scrutiny.
The essential nexus test derives from Nollan v. California Coastal Commission. In Nollan, the California Coastal Commission granted permission to James and Marilyn Nollan to replace their dilapidated beachfront bungalow with a new, larger home on the condition that the Nollans grant a public easement for their private beach.60 The Commission justified the condition by arguing that the proposed development had negative externalities: it would impede the public's ability to see the beach and would create a "psychological barrier" to using the beach.61 The Court countered with what is termed the "essential nexus" argument: state police power may prohibit an activity and limit a constitutional right (like prohibiting a person from yelling "fire" in a crowded theater, which limits freedom of speech), but it may not allow exceptions to the prohibition based on unrelated conditions (like allowing persons who contribute $100 to state coffers to yell "fire" in crowded theaters); there must be an "essential nexus" between the condition and the prohibition.62 The Court found no "essential nexus" between the required exaction (requiring a permanent public right of access to private property) and the ends advanced as the justification for the prohibition on development (improving the public's view of the ocean and diminishing the psychological barrier).63 Thus, the dedication was an "out-and-out plan of extortion" and an unconstitutional taking.64 Nollan's essential nexus test requires physical exactions to "substantially advance the same government interest that would furnish a valid ground for denial of the permit."65
After Nollan, it was still unclear to what degree the exaction would need to address the impact of the proposed development.66 Subsequently, the Court determined that the exaction must have a "rough proportionality" to the development impact.67 When Florence Dolan applied for a permit to increase the size of her store and to pave a parking lot, the city approved the permit subject to two conditions: Ms. Dolan would have to dedicate a portion of the back side of her lot as a public greenway and an adjacent strip as a public pedestrian/bicycle pathway.68 The city justified these dedications by arguing that they would improve storm drainage and reduce vehicular traffic.69 Reiterating that the right to exclude others from private property is "one of the most essential sticks in the bundle of [property] rights," the Supreme Court explained that a private greenway could improve flood control just as well as a public greenway.70 The Court also rejected the city's finding that the pedestrian/bicycle path theoretically could offset increased traffic from expanding the store; absent a finding that the path would or was likely to offset increased traffic, the demanded property dedication was unjustified.71 Thus, the government under Dolan must show that there is not only an "essential nexus" between the physical exaction and the justification for permit denial but also "rough proportionality" between the impact of the development and the requirements of the exaction.72 Rough proportionality essentially requires the public interest served by the exaction to be sufficient to justify the taking.73
As part of its analysis, the Court placed physical exactions in the well-settled doctrine of "unconstitutional conditions."74 This doctrine prevents the government from requiring "a person to give up a constitutional right-here the right to receive just compensation when property is taken for a public use-in exchange for a discretionary benefit conferred by the government where the benefit has little or no relationship to the property."75 In cases like Nollan and Dolan, the government may not condition the approval of a building permit on the surrender of the right to exclude others from property.
The Court has acknowledged that Nollan/Dolan heightened scrutiny for takings questions has not been applied outside the context of physical exactions in federal courts.76 Many state courts, however, do apply heightened scrutiny to monetary exactions.77 These courts see little difference in the imposition of a physical exaction and a monetary exaction and use the language of Nollan and Dolan to guide the analysis of monetary exactions.78 Other courts, however, argue that Nollan/Dolan heightened scrutiny is inappropriate outside the context of physical exactions of property.79 The question remains whether Supreme Court Takings Clause jurisprudence is applicable to impact fees and, if so, what analysis applies.
III. ANALYSIS: FOUR APPROACHES TO IMPACT FEES
Four positions have emerged in the debate over whether takings law applies to impact fees.80 The first position is that Nollan/Dolan heightened scrutiny only applies to mandatory dedications of land and not to impact fees. Proponents of the second position argue that Nollan/Dolan should not apply to impact fees because virtually all states apply a more stringent common-law test-the dual rational nexus test. The third position is that Nollan/Dolan should not apply to generally applicable impact fees imposed by legislatures but should apply to impact fees imposed adjudicatively on individuals. The fourth position is that Nollan/Dolan should apply to all impact fees.81
A. Nollan/Dolan Does Not Apply to Impact Fees
The Supreme Court has made statements that limit Nollan/Dolan to physical exactions and that call into question the applicability of takings jurisprudence to "ordinary obligations to pay money."82 In Del Monte Dunes v. City of Monterey, developers attempted to build residential units on an ocean front parcel that was also a buckwheat stand, the natural habitat of a rare butterfly.83 Though the builder modified the development plan to meet the local planning commission's requirements, the planning commission repeatedly denied permission to develop.84 In its analysis of Del Monte Dunes, the Court stated:
We have not extended the rough-proportionality test of Dolan beyond the special context of exactions-land-use decisions conditioning approval of development on the dedication of property to public use. The rule . . . was not designed to address, and is not readily applicable to, the . . . questions arising where, as here, the landowner's challenge is based not on excessive exactions but on denial of development.85
In Lingle, a unanimous Court cited this language approvingly, supporting the idea that Nollan/Dolan heightened scrutiny is limited to cases in which government action is so onerous that, outside the development exchange context, it would amount to a per se physical taking.86 Because a requirement to pay a fee does not resemble a per se physical taking,87 some courts have limited Nollan/Dolan heightened scrutiny to land-dedication cases.88 Many other courts have reconsidered cases in which Dolan was applied to non-landdedication situations and decided, in light of Del Monte Dunes, that Dolan was inapposite.89
The Supreme Court's clear statement in Del Monte Dunes that Dolan's rough proportionality test has not been extended beyond property dedications does not necessarily mean that it cannot, or should not, be extended in an appropriate circumstance. Del Monte Dunes did not expressly address the extension of Nollan and Dolan to impact fees, so its ruling has limited value.90 Likewise, though both the Fifth and the Tenth Circuits have refused to apply Nollan and Dolan to non-land-dedication situations, neither circuit has addressed impact fees directly.91 Furthermore, some courts directly confronting the impact fee question, like the Ehrlich court, have determined that the reasons justifying heightened scrutiny in Nollan and Dolan also justify heightened scrutiny for some impact fees.92
The Supreme Court's split decision in Eastern Enterprises v. Apfel has led commentators to argue that impact fees, as ordinary liabilities to pay money, fall outside the limits of all takings jurisprudence.93 In Eastern Enterprises, impact fees were analogized to a tax or a routine burden to pay money,94 and the Court split on whether the statutory obligation to pay money ever could form the basis of a takings claim.95 The case concerned Eastern, an energy company long since removed from the coal business, and its obligation to pay coal miners' pensions under the Coal Act.96 The plurality opinion applied the Penn Central test, finding that the Coal Act effected a taking because the Act profoundly affected Eastern's business, substantially interfered with Eastern's reasonable investment-backed expectations, and was unrelated to any commitment Eastern had made or any injury it caused.97 Justice Kennedy concurred in the judgment but found it imprecise and unwise to analyze the mere imposition of an obligation to pay a benefit under the Takings Clause.98 He argued that application of takings jurisprudence to an "ordinary obligation to pay money" would remove a consistent limitation in regulatory takings analysis: the requirement that there be a specific property right or interest at stake.99 Instead, Justice Kennedy applied due process analysis.100
The dissenters, Justices Ginsburg, Breyer, Souter, and Stevens,101 also found takings jurisprudence inapplicable, seeing no reason to torture the Takings Clause to fit a case involving an ordinary liability to pay money.102 After all, the dissent argued, if the Takings Clause does not apply to a tax requiring A to pay the government, why should it apply when the government orders A to pay B?103 The dissent agreed with Kennedy that due process review governed the analysis and argued that the Takings Clause was limited to instances in which the government takes specific and identifiable property rights.104 Coupling Kennedy with the dissenters appears to create a "second majority" opposed to the extension of takings jurisprudence to impact fees.105
The Third Circuit agreed that Eastern Enterprise limits the application of the Takings Clause to takings of specific property rights. In two unrelated suits, companies subject to the Coal Act used Eastern Enterprises to claim that the obligation to pay benefits to coal workers effected a taking of private property.106 In each case the Third Circuit felt "bound to follow the five-four vote against the takings claim" in Eastern Enterprises and applied due process analysis to uphold the Act's obligations.107 The court explained a fundamental difference between takings and substantive due process claims: "If the government pays just compensation, it may take property for public use under the Takings Clause. Due process protections, by contrast, define what the government may not require of a private party at all."108 The Third Circuit, like the dissenters and Kennedy in Eastern Enterprises, determined that because the Coal Act did not involve compensation payments by the government for property taken, but instead pushed the limit of what the government may require of a private party, due process jurisprudence applies109 Thus, one view that has emerged is that "ordinary obligations to pay money" are best reviewed under a substantive due process analysis and not a takings analysis.
B. The Dual Rational Nexus Test Obviates the Need to Apply Nollan/Dolan to Impact Fees
Scholars have argued that no labyrinthine takings analysis of impact fees is even necessary because states already apply the more stringent "dual rational nexus" test, which sufficiently protects property rights.110 This common-law test demands (1) extensive calculation of the needs for infrastructure improvement created by a proposed development and (2) earmarking of the fees to benefit the development.111 The two "rational nexuses" often are referred to as the "need" and "benefit" tests.112
The initial formulation for the dual rational nexus test is attributed to Jordan v. Village of Menomonee Falls.113 In Jordan, the city required a developer to pay a $5,000 fee in lieu of dedicating land for parks and schools to serve a proposed development.114 In sustaining the fee, the Wisconsin Supreme Court found that a burden cast upon a developer is permissible when "specifically and uniquely attributable to his activities."115 The Jordan court went further, declaring that generally it would be impossible for a city to prove that the land dedication required for a park or a school was to meet a need "solely attributable to the anticipated influx of people into the community to occupy this particular subdivision."116 Therefore, so long as the evidence "reasonably establish[ed]" the need fulfilled by the dedication, the dedication would be upheld.117 Thus, the first part of the dual rational nexus test requires the municipality to demonstrate that a developer's activity generates a need for new facilities.118 Variations of the dual rational nexus test exist in the various states, but there is "virtual unanimity" that impact fees may only require a new development to pay for costs that are reasonably related to its impact.119
The second test, inferred from Jordan, requires a city to use the funds collected specifically for the enumerated benefit to the development.120 To achieve this, a city can earmark the funds collected to benefit the new residents and demonstrate that the city's actual or projected capital expenditures as a result of the development exceed the capital payments required of the developer.121
The dual rational nexus test seems similar to the heightened scrutiny required by Nollan/Dolan. In fact, in Dolan the Supreme Court relied heavily on the test used in Jordan in devising its rough proportionality test, changing the name principally to avoid confusion with the rational basis test of equal protection jurisprudence.122 After discussing the unnecessarily exacting requirements of the "specifically and uniquely attributable" test and the excessively lax requirements of other states' tests, the Supreme Court noted that the dual rational nexus test "adopted by a majority of the state courts is closer to the federal constitutional norm."123 However, the tests are not the same. The essential difference between the two tests is that the dual rational nexus test requires not merely a "roughly proportional" relationship between the burden imposed by the exaction and the impact of the development but much more detail and specificity regarding how a developer's activity creates a need for new facilities and how the city's expenditures will benefit the development.124
Commentators have pointed out two arguments militating against a federal adoption of the dual rational nexus test.125 First, the Supreme Court doubts the competency of federal judges to construct detailed equations of harm and benefit-as would be required by the dual rational nexus test-in an attempt to second-guess legislative action.126 Second, applying the dual rational nexus test to monetary exactions presumes that developers are unable to protect themselves politically, contradicting the Supreme Court's belief that the political process is ultimately self-regulating.127 The argument, however, is not that the Court has adopted or should adopt the dual rational nexus test into its takings analysis but that impact fees should be exempted from takings analysis altogether.128
Scholars argue that the dual rational nexus test actually protects property rights better than Nollan/Dolan heightened scrutiny.129 Whereas Dolan' s "rough proportionality" does not require precise mathematical calculations-only "some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development"130-most state courts and statutes require municipalities to make considerable efforts to quantify the development's need for new capital facilities and how the required fees meet that need.131 Thus, exempting impact fees from takings jurisprudence does not leave landowners unprotected from out-and-out plans of extortion because state action violating the more stringent requirements of the dual rational nexus test would be held invalid.132
Additionally, scholars argue that takings analysis is improper in its application to both impact fees and required physical dedications because both are concerned with financing the infrastructure necessary to service the land rather than restricting the use of land-the traditional subject of takings jurisprudence.133 The traditional takings cases-Mugler, Euclid, Penn Central, Nollan, Dolan, and Ehrlich-address how a land owner can or cannot use her land.134 Impact fees, on the other hand, address who should pay for infrastructure.135 In summary, scholars argue that the dual rational nexus test should be applied to impact fees to avoid the "takings maze," protect property rights, and provide clearer guiding principles to local governments.136 Thus, federal courts should only validate fees that comport with a state's dual rational nexus test.137
C. Nollan/Dolan Applies to Impact Fees Imposed Adjudicatively but Not to Those Imposed Legislatively
Many courts have followed California's lead in applying heightened scrutiny to adjudicatively imposed impact fees but not to fees imposed legislatively. The California Supreme Court, in Ehrlich v. City of Culver City, concluded that the Nollan/Dolan test applies to impact fees adjudicatively imposed on an individual owner by an administrative agency but not those generally imposed by legislative ordinance.138 In Ehrlich, a business owner closed his private athletic club due to financial losses and petitioned the city to rezone the parcel to allow for condominium construction.139 Because it lacked health and fitness amenities, Culver City conditioned rezoning on payment of a $280,000 impact fee to be used for partial replacement of the lost facilities, and an additional $33,200 payment for the city's "art in public places" program.140 On appeal, the U.S. Supreme Court remanded the case for further consideration in light of Dolan.141 Ultimately, the California Supreme Court concluded that Nollan/Dolan heightened scrutiny applied to impact fees but only in the narrow class of land-use cases involving adjudicatively imposed fees.142
Since Ehrlich, California has bifurcated impact fee cases: impact fees imposed adjudicatively on an individual property owner by an administrative agency are subject to Nollan/Dolan heightened scrutiny, but impact fees imposed via legislation fall within the government's police power and are not subject to heightened scrutiny.143 The Ehrlich court noted that both Nollan and Dolan discuss the government's imposition of an individual land-use condition on a discretionary basis.144 In these ad hoc situations, land owners and regulatory agencies "bargain" for development rights and benefits, "purportedly offsetting] the impact of the proposed development."145 This unique context presents an inherent and heightened risk that the government will use its police power to impose dedications unrelated to legitimate ends, avoid payment of just compensation, and unfairly place the majority of the burdens on the property owner.146 The application of Nollan/Dolan heightened scrutiny, the court asserted, would dispel this issue as it concerns these adjudicatively imposed impact fees by assuring a link between the ends sought and the means taken.147
In the more common situation of legislatively imposed impact fees, however, where the exaction is imposed pursuant to legislation or a rule of general applicability, heightened scrutiny would not apply.148 In those situations, all similarly situated landowners are subject to the same fee schedule, reducing the risk that an individual landowner will be singled out for extraordinary concessions.149
Commentators have described the Ehrlich approach as a sensible middle ground in the impact fee debate.150 A substantial number of states have followed Ehrlich in making the legislative/adjudicative distinction and now apply Nollan/Dolan heightened scrutiny only to legislatively imposed impact fees.151 While these states argue that they benefit from a bright line rule,152 the line between legislatively and adjudicatively imposed fees is often blurred.153 Even the question of whether Nollan and Dolan involved exactions imposed adjudicatively or legislatively is debated.154 In truth, municipal discretionary powers "exist along a continuum and seldom fall into the neat categories of a fully predetermined legislative exaction or a completely discretionary administrative determination as to the appropriate exaction."155 Even where a line can be drawn, the distinction may not be appropriate because applying different standards of review based on the adjudicative/legislative distinction is at odds with the doctrine of unconstitutional conditions, which is indifferent to the mechanism the state uses when conditioning a benefit on the surrender of a right.156 If the doctrine of unconstitutional conditions applies, heightened scrutiny always will be appropriate, regardless of the adjudicative/legislative distinction.157
Additionally, having scrutiny turn on the adjudicative/legislative distinction is problematic because municipalities faced with heightened judicial scrutiny simply will shift the types of exactions imposed, often to the detriment of both the developer and the municipality.158 For instance, instead of imposing "high-scrutiny" adjudicative impact fees, a municipality might choose simply to impose all impact fees through "low-scrutiny" legislative enactments. A municipality gains the advantage of minimized scrutiny, but imposing all impact fees legislatively eliminates the individual determinations of costs and benefits, thereby treating developers arbitrarily and possibly reducing ' returns to the city.159 Both developers and governments can benefit when fees are tailored specifically to a particular project.160
Finally, drawing a bright-line rule may have an effect on who bears the ultimate cost of impact fees. Predictable, legislatively imposed fees that are applicable to all builders let builders know what fees to expect and whether to shift those fees either forward to buyers or backward to land sellers.161 Where impact fees are imposed adjudicatively in a less uniform system, the burden of paying the fees falls on builders, who lose the opportunity to shift costs.162 This may have the unintended consequence of discouraging development and contributing to shortages.163 However, when municipalities follow the requirement of the dual rational nexus test and make considerable efforts to quantify (1) the needs created by new development and (2) how a fee meets those needs, it seems far-fetched that "surprise" exactions will leave a developer holding the bag. Thus, adherence to the dual rational nexus test may sufficiently address the concerns faced by the Ehrlich court and obviate the need to distinguish between impact fees imposed adjudicatively and legislatively.
D. Nollan/Dolan Applies to All Impact Fees
Other scholars have argued that all forms of development exactions should be subject to heightened scrutiny equally.164 Both developers and local governments want rules that facilitate the dealmaking process, and neither is overly concerned about the form of the exaction.165 Governments want developments that pay taxes and bring jobs and exactions that avoid complaints from residents concerning the type, quality, and cost of services they receive.166 Developers are concerned about net cash outlays and limitations in profitability attributed to the exactions (minus the added value the exactions provide).167 Neither is too concerned about the form of the exaction.168 Therefore, if the Dolan test provides sufficient protection and reviewability for physical exactions, it should be applied to all forms of exaction.169
Applying heightened scrutiny to land dedications but not to impact fees would encourage cities to require fees instead of land dedications and may negatively affect both developers and cities.170 Developers often prefer to dedicate land rather than money because developers generally have more land available than funding.171 Also, by dedicating land the developer can ensure that the park, school, or widened street required by the municipality benefits its development, generating more profit.172 Additionally, it is to the city's advantage to assess fees or dedications without worrying about the legal distinction between the two.173 Generally, cities bargain for exactions to keep services high and general taxation low,174 and they prefer to engage in the bargaining process without having to modify their behavior simply to achieve a lower standard of judicial review.175
IV. SOLUTION: THE DUAL RATIONAL NEXUS TEST IS BEST
Courts should not apply Nollan/Dolan heightened scrutiny to impact fees but should exempt impact fees altogether from takings jurisprudence. Impact fees compliant with state dual rational nexus tests should be upheld, and those that do not comply with these tests should be invalidated. Three reasons support this conclusion. First, the Supreme Court twice has reaffirmed unanimously that it will not extend Nollan and Dolan beyond the special context of physical exactions of land.176 Second, impact fees are not a proper subject of any takings jurisprudence because no property right is "at stake." Finally, the risks associated with monetary exactions are best ameliorated by the more stringent dual rational nexus test.
A. The Supreme Court Does Not Extend Nollan and Dolan Beyond the Special Context of Physical Exactions
Twice a unanimous Supreme Court has held that Nollan/Dolan heightened scrutiny applies only to physical dedications of land exacted in exchange for the granting of a discretionary permit when, absent the exchange, the dedication would be a per se taking.177 As this may be the clearest decree in the canon of takings law, disturbing it would be lamentable. Lingle's plain statement that Nollan/Dolan only applies to the special context of physical takings can only be confused by applying Nollan/Dolan to impact fees. Impact fees are not physical takings, and physical takings deserve heightened constitutional scrutiny because of the unique manner in which they infringe upon constitutionally protected liberties.
1. Physical Appropriations Deserve Heightened Constitutional Scrutiny
Physical exactions of land merit heightened scrutiny. Government action that actually appropriates private land or divests the owner of title to property is particularly burdensome on individual liberties and always has demanded just compensation.178 As the Takings Clause has expanded over the centuries to include protection from takings by regulation, judicial scrutiny of actual physical appropriation has endured, and its raison d'être remains undisputed.179 Physical exactions intrude on the use and enjoyment of land, the right to exclude others, the right to transfer property, and other protected property rights. These rights, when destroyed by government action, constitute considerable invasion and interference that warrant Nollan/Dolan heightened scrutiny.180 On the other hand, impact fees do not restrict or regulate the use or enjoyment of land; impact fees leave no intrusive easements; impact fees do not burden the right to transfer property. In short, impact fees in no way cause harm similar to the harms that give rise to a Nollan/Dolan heightened concern. Paying the fees leaves property totally unburdened.
Commentators argue that physical and monetary exactions should be treated equally because, in a business deal between developers and the government, the form an exaction takes is inconsequential.181 Even assuming that developers and municipalities do not care much about the form an exaction takes, it must be remembered that not everyone is a developer or a municipality, and the form of the exaction can be of tremendous concern. The Nollans, for example, were not developers but owners of a single-family home who sought a discretionary permit to build a larger home on their coastal lot. Families often care a great deal about their right to exclude others from their property. Paying fees is one thing; having strangers trample through the children's sandbox is a different concern altogether. The former implicates little constitutional concern for the family seeking a remodeling permit; the latter implicates tremendous concerns. This reasoning, of course, is not limited to families. It is likely that most landowners care about who has access to their property. And developers, who have to assuage buyers' concerns about the rights running with the property they purchase, also care about the form an exaction takes. The unique nature of property and concern over government invasion of its use and enjoyment justify heightened scrutiny for physical exactions without requiring similar scrutiny of impact fees. Therefore, the Supreme Court's language in Lingle and Del Monte Dunes that treats physical takings of land differently is reasonable and should remain unmolested.
2. Impact Fees Do Not Amount to Per Se Physical Takings as Is Required for Heightened Scrutiny
Nollan and Dolan are limited to cases in which, if the government had acted outside the bargaining context, its actions would amount to a per se physical taking. Impact fees do not amount to per se physical takings; thus, Nollan/Dolan heightened scrutiny does not apply. In both Nollan and Dolan, the government had discretion whether to approve a petitioner's application for a building permit.182 In each instance, the government approved the permit subject to the condition that a portion of the petitioner's land be dedicated as a public easement.183 The conditions were "so onerous," said the Supreme Court, "that, outside the exaction context, they would be deemed per se physical takings."184 Because the government could not appropriate the easements directly without paying compensation, it likewise could not condition permit approval on dedicating the easements.185 Thus, when looking at the situation outside the exaction context, the taking would be unconstitutional.
Contrarily, when the government requires impact fees, the grant of a permit is not contingent on the landowner surrendering a right that, outside the exaction context, would be deemed a per se physical taking. Indeed, the government does not require the property owner to surrender any constitutionally protected property right at all; the government merely conditions the permit on payment of money. Only if the government demanded a fee that was so onerous that outside the exaction it would be deemed a per se physical taking could Nollan/Dolan's heightened scrutiny apply.186 Certainly ordinary fees do not rise to this level. An ordinary fee may interfere with reasonable investment-backed expectations or have an economic impact, but those concerns implicate Penn Central review and are insufficient to reach Nollan/Dolan scrutiny.
It seems the only conceivable way for an impact fee to result in a per se physical taking is to imagine an impact fee so high that it deprives an owner of all economically beneficial use of his property. This situation is similar to Lucas v. South Carolina Coastal Council, in which a developer was denied the right to build any permanent structure on his beachfront property.187 The Supreme Court recognized that government regulations totally depriving owners of all economically beneficial use of property are per se takings.188 However, in two situations Lucas's per se rule is limited by other Supreme Court precedent: (1) total deprivation of all beneficial use on only a fraction of a parcel is not a per se taking,189 and (2) total deprivation of all beneficial use for a temporary period is not a per se taking.190 Penn Central, not Lucas, governs instances in which a less-than-total deprivation of all economically beneficial use is at issue.191 Applying Lucas and these two Lucas-limiting cases to impact fees leads to a conclusion that a fee that approximates actual appropriation-a fee so high that any and all reasonable, economically beneficial use is precluded-may be a per se taking. Such fees would have to be astronomical, however, to deny a developer all economically beneficial use. Anything less than a total deprivation of all economically beneficial use is merely a fractional deprivation, conceivably can be paid, and, once paid, all property rights remain. Because a less-thanastronomical fee can conceivably be paid without total deprivation of economically beneficial use, Lucas's concern of per se taking of physical property mirroring physical appropriation is not an issue. Rather, impact fees appear more like total takings on a fraction of land or total takings for a temporary period: the fees may seriously hamper development but do not preclude development. Thus, if takings jurisprudence must apply, the Penn Central test should govern.192
Finally, even if a court found that an impact fee could and did deprive an owner of all reasonable, economically beneficial use of his property, the court could invalidate the fee easily under Lucas and avoid a contorted Nollan/Dolan analysis. Thus, if one forces regulatory takings jurisprudence on impact fees, either Lucas or Penn Central would govern rather than Nollan/Dolan. This result is unacceptable because it leaves property owners insufficiently protected: Penn Central applies no heightened scrutiny, and Lucas situations are too rare.193
B. No Property Right Is "at Stake" When Governments Impose Impact Fees
Impact fees do not regulate land use and, therefore, should be exempt not only from Nollan/Dolan scrutiny, but from all takings jurisprudence. The subject of regulatory takings jurisprudence always has been ordinances regulating land use,194 such as easements, transfers in title, changes in permitted use, or other alterations in the "bundle" of rights associated with the property.195 Further, the Supreme Court always has dismissed takings challenges when the interests in need of protection are not sufficiently bound up with reasonable expectations to constitute "property" for Fifth Amendment purposes.196 The crux of the issue, therefore, is whether an impact fee triggers the Takings Clause because it results from government regulation measured by, applicable to, operating upon, or altering an identifiable property interest,197 or whether the clause is not triggered because the fee is merely an attempt to adjust the benefits and burdens of economic life.198 The latter is the better understanding. Impact fees result in no alterations of property rights. The fees do not deny uses, regulate uses, leave easements, permit invasion, condemn rights, transfer title, or alter any property interest or right. Payment of impact fees leaves all property interests-all the "sticks" in the bundle of rights-intact. The fees only make the exercise of the right to develop more expensive. Impact fees are better viewed as attempts to raise funds for infrastructure improvement and to adjust the benefits and burdens of economic life, which is not traditionally a subject of takings jurisprudence.199 Though some commentators argue that both physical and monetary exactions share the purpose of funding infrastructure improvements and should not be subject to takings jurisprudence,200 physical exactions also directly regulate land use and alter property rights. Thus, takings jurisprudence is appropriately applied to physical exactions and not impact fees.
Although impact fees, as Justice Kennedy would say in Eastern Enterprises, may "regard" and "operate upon" property, applying takings jurisprudence to every regulation that "regards" and "operates upon" property expands the reach of the Fifth Amendment too far and unreasonably blurs the line between due process and takings analyses. Takings analysis already has expanded from administering only physical appropriation and divesting of title201 to administering all land-use regulations.202 Though now reasonably limited to land-use regulations,203 Justice Kennedy's language, if adopted as a new test for takings analysis, would expand the Takings Clause to any government action "regarding" or "operating upon" a property right.204 According to this interpretation, impact fees "operate upon" property and are imposed according to the size of the property and the impact of its use, thus subjecting the fees to takings analysis.205 But to what degree of attenuation could the "regarding" and "operate upon" language be stretched? Do mining fees "operate upon" property rights? What about patent registration fees? Vehicle licensing fees? Any fee could "regard" or "operate upon" property and thus merit Takings Clause protection. Also, considering the uncertain distinction between fees and taxes,206 it would not be inconceivable to see courts apply the Takings Clause to taxes that "operate upon" property. Softening the Takings Clause's outer limit essentially transforms the Clause from a protection against invasion of property rights and use regulations to a protection against any government action that even remotely concerns property.
Rather than limiting their focus to whether government action "operates upon" property, courts would be wise to consider Justice Kennedy's concern as to whether "a specific property right or interest [is] at stake."207 Examples of "at stake" property interests in past cases include permanent public easements, total deprivation of the right to build, or denial of the right to use air space.208 In Lingle, Justice Kennedy agreed in his concurrence that these cases share a common touchstone: they identify regulatory action that is functionally equivalent to the classic taking in which "government directly appropriates private property or ousts the owner from his domain."209 Demanding large, onerous fees in exchange for a discretionary permit does not destroy the right to build, nor is it the functional equivalent of a direct appropriation or ouster, and thus it does not put a property right "at stake."210 Particularly onerous or arbitrarily imposed fees may compromise some other protected right but not the right to take private property for public use. Thus, the rational limit of the Takings Clause should be maintained by applying the clause only to land-use regulations when a property right is at stake and not to impact fees that seek merely to determine how public infrastructure improvements will be financed.
Additionally, impact fees do not raise the same concerns over property rights that justify review under the Takings Clause. The concern at the heart of the Takings Clause is that the state will use its eminent domain power to obtain rights in property that rightfully can be obtained only by paying just compensation.211 This concern applies to physical exactions; thus, takings jurisprudence and heightened scrutiny prevent the government from using either condemnation or bargaining to avoid paying just compensation.212 With impact fees, however, there is no concern that the state is trying to take property without paying just compensation; the state obtains no property interest during the process. Furthermore, applying the Takings Clause to impact fees would mean that the government could "take" an excessive fee only as long as it pays just compensation for that fee.213 Requiring payment of just compensation for a cash demand is nonsensical.
Classifying impact fees as takings-exempt financing regulations instead of takings-governed land-use regulations is both useful and manageable. Not only will one category of government action be removed from the "takings maze," but it can be done without changing current federal takings laws, which presently do not encompass impact fees. Further, courts easily can distinguish government action regulating property use from fundraising for infrastructure improvements. Infrastructure financing regulations raise a different set of concerns than land-use regulations and thus are deserving of different treatment in the courts.214 Whereas the constitutional concern with land-use regulation is that the government will appropriate or interfere with a property right without paying just compensation, the concern with financing regulation is that the government will impose arbitrary and abusive fees.215 Courts can address that concern better outside takings analysis by using the dual rational nexus test.
Removing the Takings Clause analysis does not necessarily mean that impact fees would or should be subject to due process review. The due process clause of the Constitution states that citizens shall not be deprived "of life, liberty, or property, without due process of law."216 This clause protects citizens from arbitrary and capricious government action that is fundamentally unfair217 and "infringe [s on] fundamental principles as they have been understood by the traditions of our people and our law."218 Courts apply strict scrutiny only when fundamental liberties are infringed, and greater deference is granted to states regulating non-fundamental liberties such as economic interests.219 Because impact fees are devices designed to facilitate infrastructure improvement financing that implicates economic interests, it is difficult to fathom courts treating the fees with heightened scrutiny.220 Considering the serious issues that excessive fees raise, especially regarding the fear of extortion, substantive due process review provides insufficient protection.
C. The Risks Associated with Infrastructure Financing Regulations Can Best Be Mitigated by Application of the Dual Rational Nexus Test
Courts should apply the common-law dual rational nexus test to all impact fees. The dual rational nexus test provides protection that is more stringent than that provided by the other federal takings tests. Whereas Penn Central merely requires a weighing of factors and Nollan/Dolan requires "rough proportionality" and an "essential nexus," the dual rational nexus test requires a specific analysis of the needs created by the development and the funds collected to be used to benefit the development. Thus, courts actually increase protection of private property rights by exempting impact fees from federal takings analysis.
The Ehrlich approach-applying Nollan/Dolan heightened scrutiny only to adjudicatively imposed fees-insufficiently protects against government abuse. A central reason for applying Nollan/Dolan heightened scrutiny to impact fees is the fear of "out-and-out plans of extortion."221 In Ehrlich, for example, the court argued that applying heightened scrutiny is necessary to ensure that governments do not use their monopoly power over development permits to impose illegitimate conditions lacking logical connection to the impact of the proposed development.222 Extortion concerns increase when political constraints on the legislative process are weak.223 Thus, courts following Ehrlich apply heightened scrutiny to impact fees that are imposed adjudicatively but not to those imposed legislatively.224 This view reflects a longstanding distrust of state legislatures' propensity to protect citizens' rights.225 Early Americans, however, not only feared the ad hoc decisions of government officials but also mistrusted all legislative decisions.226 Governmental abuse can occur with either type of decision. If the result is a constitutional violation, the manner through which it was imposed should not matter. The Ehrlich approach only increases constitutional protection from the danger of an arbitrary administrative body; the threat posed by irrational, legislatively imposed fees is left undeterred.
Additionally, applying heightened scrutiny to administrative and not legislative decisions incentivizes a shift of fee decisions to legislatures that then would set the fees in generally applicable rules.227 Generally applicable rules, because of their rigidity, may be more likely than adjudicative rules to yield unfair results228 because they reduce the ability of developers and the government to barter.229 Contrary to the Ehrlich court's belief that only the government has a strong hand at the bargaining table, local governments often want to attract development and even waive fees to attract economically beneficial land-use projects.230 Therefore, it is possible that both parties would disfavor legislatively imposed fees.
Even if Nollan and Dolan applied to both legislatively and adjudicatively imposed impact fees, they would provide less protection from extortion than the dual rational nexus test. The dual rational nexus test demands (1) extensively calculating the impact of a proposed development on infrastructure and (2) earmarking the fees to benefit the development.231 Though Dolan does require some sort of relationship between the nature and extent of the impact, no individualized mathematical calculation is required-the test only demands that the determination be "roughly proportional."232 The "rough proportionality" language of Dolan is appropriate in physical dedications, where it is understandably difficult to create an exact accounting of a need for land. For example, the amount of land that needs to be dedicated to improve water drainage or the types of easements that can reduce psychological barriers to beaches are not easy to calculate. But where more exact calculations are possible, as is the case with capital financing through impact fees, rough estimates are inappropriate. Governments and developers are expertly qualified to make cost projections. Requiring detailed, specific projections of needs and benefits before imposing impact fees provides a substantial check on government extortion-even greater than would be available under Nollan/Dolan's heightened scrutiny.
Courts should not incorporate the dual rational nexus test for monetary exactions into takings jurisprudence as they did the rational relationship test for physical exactions. In addition to the special constitutional concerns of property rights and the inapplicability of the Takings Clause to impact fees, analysis of the dual rational nexus test requires review of the detailed, fact-specific calculus used to determine the benefits and burdens of the actions reviewed. State courts have managed to handle such a calculus for two decades.233 Federal courts should exempt impact fees from federal takings analysis and review impact fees under state dual rational nexus tests. Courts can best protect against fears of extortion, avoid further muddling the Takings Clause, and leave detailed analyses of benefits to experienced state courts by refusing to apply takings analysis to monetary exactions regardless of whether the exactions are legislatively or adjudicatively imposed.234
V. CONCLUSION
As cities like Naples seek to fund the infrastructure improvements necessary to serve growing populations in the face of limited state and federal resource contributions, impact fees will continue to play a vital role. Builders, forced to bargain with local governmental entities holding monopoly power over the grant of building permits, are rightly concerned about impact fees that amount to little more than "out-and-out plans of extortion." Appling the dual rational nexus test to impact fees is the best way for courts to protect the rights of property owners, facilitate the collection of only necessary impact fees, and ensure that the funds generated from those fees benefit the targeted party. These benefits are not sufficiently protected under Nollan/Dolan heightened scrutiny. Besides these practical advantages, reviewing impact fees under the dual rational nexus test and not Nollan/Dolan heightened scrutiny follows unanimous decisions by the Supreme Court that reserve a distinct place in takings jurisprudence for actual appropriation, destruction, or invasion of property. Finally, exempting impact fees from takings jurisprudence maintains a definable and reasonable outer limit to the government's power under the Takings Clause-government action that actually regulates the use of property and causes specific, identifiable property rights to be "at stake."
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| [Author Affiliation] |
| Charles Thompson Switzer* |
| * I would like to thank my wife and children, whose love is an ever-fixed mark. I also owe thanks to the members of the VANDERBILT LAW REVIEW for their insight, dedication, and friendship. |
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