This morning I spoke in Wilmington at a meeting of Coastal Carolina Tomorrow, the local developer’s trade organization. The topic was exactions.
An exaction, roughly described, is an ad hoc payment or concession leveraged by governmental coercion. In most situations arising from real estate development, exactions make sense, they are negotiated, and they are fair. But a local government with the ultimate power to say “yes” or “no” to any project has bargaining power, and it’s a power that occasionally needs to be reined in.
Limiting our government’s power to take from us is a bedrock principle of the United State Constitution. As a nation, we have existed continuously for 220 years because we intentionally limit the powers of those we entrust with public office.
Two fraternal twin U.S. Supreme Court cases provide a basic checklist for identifying inappropriate exactions.
In 1987, the Court decided Nollan v. California Coastal Commission. In Nollan, the California Coastal Commission required owners of beachfront property wishing to obtain a building permit to maintain a pathway on their property open to the public. The question before the court was whether this requirement constituted a taking under the Fifth and Fourteenth Amendments. The Court agreed that a legitimate interest may be served by maintaining a “continuous strip of publicly accessible beach along the coast.” However, Justice Scalia reasoned that if California wished to use its power of eminent domain to do so, it must provide just compensation to the Nollans and other beachfront property owners for the public use of their land.
The “take away” lesson from Nollan is that there must be a rational nexus between the governmental exaction and the problem addressed.
In 1994, the U.S. Supreme Court handed down a decision in Dolan v. City of Tigard. According to Wikipedia, Dolan “was a landmark case regarding the practice of zoning and property rights, and served to establish limits on the ability of cities and other government agencies, to use zoning and land-use regulations to compel property owners to make unrelated public improvements.”
In Dolan, the owner of a plumbing and electrical supply store went to the local Board of Adjustment for a variance to expand the business. The BOA agreed, as long as the petitioners dedicated land they owned for a part of the greenway for a pedestrian and bicycle path. Plaintiffs appealed.
The U.S. Supreme Court overturned the state Land Use Board of Appeals and the Oregon appellate courts, holding that a government may not use discretionary rights to dispossess a citizen of constitutional protections, especially where there is a questionable relationship between the exaction and the benefit conferred. The Court established a two-prong test: First, there must be an “essential nexus” between the permit conditions and legitimate state interest, and second, the exactions required by the permit condition must be roughly proportional to the impact of the proposed development.
The most common form of exaction in North Carolina is development traffic mitigation. Traffic mitigation sometimes gets out of hand, especially when there is no objective determination of the impact or the improvements needed to abate them.
Traffic studies by traffic engineers offer that measuring stick. Traffic engineers use sophisticated software to calculate a project’s traffic at peak and other times of the day and to suggest appropriate mitigation measures. These studies are analogous to a civil engineer’s calculations of the tons of concrete and steel needed to construct a bridge.