Daily Development for Wednesday, February 7, 2001

CONSTITUTIONAL LAW; EXACTIONS: Traffic improvement impact fee provision is constitutional on its face as a matter of state and federal constitutional law when it requires that there be a determination that there is a nexus between the developer's project and the need for greater traffic capacity and a separate determination that the fee itself bears a relationship to the degree of impact specifically generated by the developer's project. The ordinance need not require specifically that the public agency also contribute to the traffic improvement fund.

Home Builders Ass'n of Dayton and the Miami Valley v. City of Beavercreek, 729 N.E.2d 349 (Ohio 2000).

City passed an ordinance establishing a system of impact fees payable by developers of real estate to aid in the cost of new roadway projects. Homebuilders association and developers filed complaints against the City alleging that the impact fee ordinance was unconstitutional on the grounds that it violated Substantive Due Process and Equal Protection rights and constituted an illegal taking without just compensation.

In a bench trial, the trial court ruled that the ordinance was constitutional on both grounds, but the intermediate appellate court reversed that decision, holding the ordinance constitutionally invalid because it did not contain a provision requiring the City to contribute public funds to the roadway projects.

This case then became a major test case in Ohio, loaded with amicus arguments. In the end, the public agencies survived by a 43 vote from the divided Ohio Supreme Court. And, remember, this is only the "on its face" argument. The next shoe will drop when a specific Beavercreek exaction is tested under the "as applied" analysis.

The Ohio Supreme Court here affirmed the trial court's application of the dual rational nexus test established by the U.S. Supreme Court in Nollan v. California Coastal Comm., 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 304 (1987) and Dolan v. City of Tigard, 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994). The dual rational nexus test requires a court to determine (1) whether there is a reasonable connection between the need for additional capital facilities and the population increase due to the subdivision, and (2) if such a reasonable connection exists, whether there s a reasonable connection between the expenditure of the collected impact fees and the benefits accruing to the subdivision.

In evaluating whether the second prong is satisfied, the court should consider the actual costs of the constructing new roadways, the formula used to determine the fee, the fee paid by a particular developer, the city's contribution, road improvements made directly by developers, the length of time between the payment of the fee and the new roadway construction projects, whether the roadway projects are sitespecific to the new development, and any other criterion that bears on the reasonableness of the fee.

The court stated that a matching funds provision may be used to measure a city's contribution in determining whether the fee imposed on a developer of real estate is proportional to the city's cost, but it is not the only permissible way in which a city can make a contribution to a roadway project. It noted that developers are entitled to a credit against the fee for contributions the developers have made by way of separate traffic improvements constructed or property donated for such improvements, when such improvements address more than simply the traffic generated from the developers' projects. The city, the court concluded, might also be able to contend that its own independently funded traffic improvements partly benefit an individual developer's project and part the general public, and thus could claim a kind of "credit" against making an independent contribution to a jointly funded traffic project.

Finally, the court held that the impact fee ordinance was not facially unconstitutional because it did not state a specific time period during which the City must apply credits earned by developers for rightofway dedications and road improvements made by the developer. Again, it deferred consideration of this issue until it had a real case before it. The ordinance is Constitutional on its face.

The Ohio Supreme Court judges who dissented appeared to take a stronger view of the meaning of the Ohio Constitution, and would have gone beyond U.S. Supreme Court tests. In their view, the imposition of an impact fee is a tax when the target improvements are located outside of the development, since such improvements are of a benefit to the general public. Under the Ohio Constitution, tax burdens must be distributed equally. Here, the dissent contended, the burden was not distributed equally because existing community residents were neither required to pay specially for the traffic improvements that they created a need for nor are they required to pay for the traffic improvements that the new developments must pay for.

Comment: Of course, the debate over the proper allocation of the burden of public infrastructure is an argument that will never end. There is no question that there is some unfairness when newcomers are forced to pay the costs of improvements that their presence makes necessary, while oldtimers did not have to pay a similar share when they moved in. But the U.S. Supreme Court has not found this concept offensive as a matter of federal Constitutional law, and it is a widely used approach across the country. Some things just ain't fair. That doesn't mean they're unconstitutional. That's just the way it is.

But, as noted, watch for the "as applied" argument here. Beavercreek just escaped with a positive vote at the theoretical level, and one can be sure that the various courts will regard with great interest its efforts to develop a fair exaction formula.

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