New York Impact Fees: Unconstitutional?

A developer challenging two fees imposed by a town as part of the price of obtaining subdivision approval claimed in its suit that the Town of Monroe's Local Law 3 was unconstitutional. The developer's claim was rejected by the Second Department in Twin Lakes Development Corp. v. Town of Monroe (see page 3). Although the court's conclusion was not surprising in light of past judicial treatment of impact fees, the case presents the opportunity for a reconsideration of New York's treatment of such fees.

The Twin Lakes Case

The Twin Lakes Development Corp., which sought to subdivide a parcel into 22 residential lots in Monroe, challenged the town's Local Law 3, which required a subdivision applicant to pay a fee of $1500 per lot in lieu of a dedication of parkland on its property. (The developer also challenged a second local law which required a subdivision applicant to pay consultant fees incurred by the town Planning Board in reviewing the subdivision application; this article does not directly address that fee). The developer contended that Local Law 3 was unconstitutional. In addition, Local Law 3 raised significant statutory issues.

The Statutory Framework

New York's municipalities enjoy only those powers conferred on them by the state. As a result, municipalities may not impose fees on developers without statutory authorization. For instance, a municipality may not condition development permits on the developer's contribution to a fund for roadway improvement. In Albany Area Builders Assn v. Town of Guilderland, 74 NY2d 372 (1989), the Court of Appeals struck down a town's attempt to impose a 'transportation impact fee' on applicants for building permits who sought to make changes in land use that would generate additional traffic. The court concluded that the local law was pre-empted by state law governing roadway funding. And in Matter of Sepco Ventures, Ltd v. Planning Board, 230 AD2d 913 (1996), the Second Department held that a town planning board lacked authority to condition subdivision approval on the developer's improvement of roads outside the subdivision or the developer's contribution to the town for a share of such improvements. Earlier, in Maloco v. Town of Brookhaven Planning Board, 34 AD2d 999 (1970), the same court held that a planning board could not condition subdivision approval on payment of a 'drainage contribution.'

Although New York statutes do not authorize impact fees for road or drainage improvement, they do expressly authorize a municipality to require a dedication of parkland, or payment of an impact fee in lieu of parkland, as a condition for subdivision approval. Section 277(4)(c) of the Town Law provides expressly that if the planning board determines that a subdivision presents a proper case for requiring a park, but that a park of adequate size cannot be properly located on the subdivision plat, 'the planning board may require a sum of money in lieu thereof, in an amount to be established by the town board.' Parallel provisions are included in section 33 of the General City Law and section 7-730(4) of the Village Law.

In the Twin Lakes case, Local Law 3 required applicants for subdivision approval to pay a fee of $1500 per lot; the local law made no provision for an assessment of the need generated by any particular development. A similar scheme, involving a blanket assessment of $5000 per lot, had previously been upheld in Weingarten v. Town of Lewisboro, 144 Misc2d 849 (1989).

There is, however, a strong argument that such blanket assessments violate the statutory mandate. Town Law section 277(4) (like the corresponding provisions in the General City Law and the Village Law) provides that a dedication of parkland may not be required until the planning board 'has made a finding that a proper case exists for requiring that a park or parks be suitably located' ' and also provides that the findings 'shall include an evaluation of the present and anticipated future needs for park and recreational facilities ' based on projected population growth to which the particular subdivision plat will contribute.' That is, the statute appears to require an individualized determination of the needs generated by the particular subdivision, a determination the town did not make in the Twin Lakes case.

The Court of Appeals' opinion in Matter of Bayswater Realty & Capital Corp. v. Planning Board, 76 NY2d 460 (1990), provides support for this reading of the statute. In Bayswater, the town sought to impose a fee in lieu of parkland, while simultaneously approving a 'cluster' subdivision that required the developer to reserve significant 'open space.' The court rejected the developer's argument that the open space set aside was the equivalent of a park which the town board was empowered to require under section 277; that is, the court concluded that the town could both mandate open space and exact a fee 'in lieu' of parkland. At the same time, however, the court annulled the fee imposed by the board because the town planning board had not made the findings required by section 277. The court made it clear that a planning board may impose a payment requirement only after making two determinations: first, that a proper case exits for requiring the developer to show on the plat a park or parks suitably located, and second, that a suitable park or parks cannot be properly located in the plat. That is, Bayswater suggests that a town must conduct an individualized investigation of the need for parkland, the very sort of investigation the town did not conduct in Twin Lakes, and the kind of investigation that would be precluded by the Town of Monroe's Local Law 3.

The Constitutional Issue

A town's power to exact fees from developers is subject not merely to statutory limits, but also to constitutional restrictions. In Nollan v. California Coastal Commission, 483 US 825 (1987), the United States Supreme Court held that if a municipality imposes a condition on a developer's right to a development permit, that condition works an unconstitutional taking unless the condition is reasonably related to the reason for requiring the permit. In Nollan itself, landowners sought to demolish and replace a decrepit bungalow on beachfront land. The proposed replacement structure required a coastal development permit. The Commission informed the Nollans that the permit application would be approved, subject to the condition that the Nollans grant to the public an easement to pass across their beachfront property. The Nollans protested, and the Supreme Court held that the Commission could not demand the easement in return for the permit, concluding that there was no 'nexus' between the easement and the reason for the permit requirement. Justice Scalia emphasized that to permit municipalities to impose conditions unrelated to the reason for the permit requirement would encourage municipalities to enact stringent land use regulations which the municipality could then waive to accomplish other purposes.

The Supreme Court refined the Nollan approach in Dolan v. City of Tigard, 512 US 374 (1994).  Landowner challenged a city ordinance that required dedication of open land for a 'greenway' as a condition for obtaining a building permit adjacent to a creek's 100-year floodplain. Landowner had sought to raze her existing plumbing and electric supply store, and to build a larger one elsewhere on her parcel, and the city, citing the ordinance, required a dedication of about 10% of landowner's parcel, in part to serve as a pedestrian/bicycle pathway.

The city's planning commission found that it was reasonable to assume that landowner's customers would use the pathway for their transportation and recreational needs. The Oregon courts rejected landowner's takings challenge. The Supreme Court first agreed with the Oregon courts that a 'nexus' existed between the required bicycle pathway and the increased traffic congestion that would result from the expanded store. But the Court, in an opinion by Chief Justice Rehnquist, went on to hold that a required dedication must be roughly proportional to the proposed development. The Court explicitly rejected as 'too lax' the generalized statements of connection previously articulated by the New York Court of Appeals in Jenad Inc. v. Scarsdale, 18 NY2d 78 (1966).

Most important for evaluating cases like Twin Lakes, the Court insisted that a municipality 'must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.' Moreover, in footnote 39 to the Dolan opinion, Chief Justice Rehnquist made it clear that the burden of justifying the required dedication rests with the city. The Court distinguished between 'generally applicable zoning regulations,' where the burden rests on the landowner challenging the regulation, and 'an adjudicative decision to condition petitioner's application for a building permit on an individual parcel', where the burden rests on the municipality.

In Twin Lakes itself, the Second Department cited Dolan, but nevertheless concluded that the landowner, not the town, bore the burden of proof. To the extent the subdivision regulation process is 'adjudicative', the Second Department clearly applied an incorrect constitutional standard.  Local Law 3 did not provide for a blanket parkland fee at $1500 for each development lot within the town; the fee was imposed only if the planning board required dedication of parkland and determined that landowner should pay a fee in lieu of dedication. Those decisions appear adjudicative in nature. Paradoxically, the town could not have required a blanket fee of $1,500, not because of any constitutional constraint, but because Town Law section 277, as construed in Bayswater, requires an individualized determination!

Conclusion

The combination of constitutional and statutory requirements makes it difficult for New York municipalities to impose parkland impact fees without making findings that support the conclusion that the proposed development creates the need for additional park facilities. The court in Twin Lakes did not give due consideration to the complex statutory and constitutional scheme.

A developer challenging two fees imposed by a town as part of the price of obtaining subdivision approval claimed in its suit that the Town of Monroe's Local Law 3 was unconstitutional. The developer's claim was rejected by the Second Department in Twin Lakes Development Corp. v. Town of Monroe (see page 3). Although the court's conclusion was not surprising in light of past judicial treatment of impact fees, the case presents the opportunity for a reconsideration of New York's treatment of such fees.

The Twin Lakes Case

The Twin Lakes Development Corp., which sought to subdivide a parcel into 22 residential lots in Monroe, challenged the town's Local Law 3, which required a subdivision applicant to pay a fee of $1500 per lot in lieu of a dedication of parkland on its property. (The developer also challenged a second local law which required a subdivision applicant to pay consultant fees incurred by the town Planning Board in reviewing the subdivision application; this article does not directly address that fee). The developer contended that Local Law 3 was unconstitutional. In addition, Local Law 3 raised significant statutory issues.

The Statutory Framework

New York's municipalities enjoy only those powers conferred on them by the state. As a result, municipalities may not impose fees on developers without statutory authorization. For instance, a municipality may not condition development permits on the developer's contribution to a fund for roadway improvement. In Albany Area Builders Assn v. Town of Guilderland , 74 NY2d 372 (1989), the Court of Appeals struck down a town's attempt to impose a 'transportation impact fee' on applicants for building permits who sought to make changes in land use that would generate additional traffic. The court concluded that the local law was pre-empted by state law governing roadway funding. And in Matter of Sepco Ventures, Ltd v. Planning Board , 230 AD2d 913 (1996), the Second Department held that a town planning board lacked authority to condition subdivision approval on the developer's improvement of roads outside the subdivision or the developer's contribution to the town for a share of such improvements. Earlier, in Maloco v. Town of Brookhaven Planning Board , 34 AD2d 999 (1970), the same court held that a planning board could not condition subdivision approval on payment of a 'drainage contribution.'

Although New York statutes do not authorize impact fees for road or drainage improvement, they do expressly authorize a municipality to require a dedication of parkland, or payment of an impact fee in lieu of parkland, as a condition for subdivision approval. Section 277(4)(c) of the Town Law provides expressly that if the planning board determines that a subdivision presents a proper case for requiring a park, but that a park of adequate size cannot be properly located on the subdivision plat, 'the planning board may require a sum of money in lieu thereof, in an amount to be established by the town board.' Parallel provisions are included in section 33 of the General City Law and section 7-730(4) of the Village Law.

In the Twin Lakes case, Local Law 3 required applicants for subdivision approval to pay a fee of $1500 per lot; the local law made no provision for an assessment of the need generated by any particular development. A similar scheme, involving a blanket assessment of $5000 per lot, had previously been upheld in Weingarten v. Town of Lewisboro , 144 Misc2d 849 (1989).

There is, however, a strong argument that such blanket assessments violate the statutory mandate. Town Law section 277(4) (like the corresponding provisions in the General City Law and the Village Law) provides that a dedication of parkland may not be required until the planning board 'has made a finding that a proper case exists for requiring that a park or parks be suitably located' ' and also provides that the findings 'shall include an evaluation of the present and anticipated future needs for park and recreational facilities ' based on projected population growth to which the particular subdivision plat will contribute.' That is, the statute appears to require an individualized determination of the needs generated by the particular subdivision, a determination the town did not make in the Twin Lakes case.

The Court of Appeals' opinion in Matter of Bayswater Realty & Capital Corp. v. Planning Board , 76 NY2d 460 (1990), provides support for this reading of the statute. In Bayswater, the town sought to impose a fee in lieu of parkland, while simultaneously approving a 'cluster' subdivision that required the developer to reserve significant 'open space.' The court rejected the developer's argument that the open space set aside was the equivalent of a park which the town board was empowered to require under section 277; that is, the court concluded that the town could both mandate open space and exact a fee 'in lieu' of parkland. At the same time, however, the court annulled the fee imposed by the board because the town planning board had not made the findings required by section 277. The court made it clear that a planning board may impose a payment requirement only after making two determinations: first, that a proper case exits for requiring the developer to show on the plat a park or parks suitably located, and second, that a suitable park or parks cannot be properly located in the plat. That is, Bayswater suggests that a town must conduct an individualized investigation of the need for parkland, the very sort of investigation the town did not conduct in Twin Lakes, and the kind of investigation that would be precluded by the Town of Monroe's Local Law 3.

The Constitutional Issue

A town's power to exact fees from developers is subject not merely to statutory limits, but also to constitutional restrictions. In Nollan v. California Coastal Commission , 483 US 825 (1987), the United States Supreme Court held that if a municipality imposes a condition on a developer's right to a development permit, that condition works an unconstitutional taking unless the condition is reasonably related to the reason for requiring the permit. In Nollan itself, landowners sought to demolish and replace a decrepit bungalow on beachfront land. The proposed replacement structure required a coastal development permit. The Commission informed the Nollans that the permit application would be approved, subject to the condition that the Nollans grant to the public an easement to pass across their beachfront property. The Nollans protested, and the Supreme Court held that the Commission could not demand the easement in return for the permit, concluding that there was no 'nexus' between the easement and the reason for the permit requirement. Justice Scalia emphasized that to permit municipalities to impose conditions unrelated to the reason for the permit requirement would encourage municipalities to enact stringent land use regulations which the municipality could then waive to accomplish other purposes.

The Supreme Court refined the Nollan approach in Dolan v. City of Tigard , 512 US 374 (1994).  Landowner challenged a city ordinance that required dedication of open land for a 'greenway' as a condition for obtaining a building permit adjacent to a creek's 100-year floodplain. Landowner had sought to raze her existing plumbing and electric supply store, and to build a larger one elsewhere on her parcel, and the city, citing the ordinance, required a dedication of about 10% of landowner's parcel, in part to serve as a pedestrian/bicycle pathway.

The city's planning commission found that it was reasonable to assume that landowner's customers would use the pathway for their transportation and recreational needs. The Oregon courts rejected landowner's takings challenge. The Supreme Court first agreed with the Oregon courts that a 'nexus' existed between the required bicycle pathway and the increased traffic congestion that would result from the expanded store. But the Court, in an opinion by Chief Justice Rehnquist, went on to hold that a required dedication must be roughly proportional to the proposed development. The Court explicitly rejected as 'too lax' the generalized statements of connection previously articulated by the New York Court of Appeals in Jenad Inc. v. Scarsdale , 18 NY2d 78 (1966).

Most important for evaluating cases like Twin Lakes, the Court insisted that a municipality 'must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.' Moreover, in footnote 39 to the Dolan opinion, Chief Justice Rehnquist made it clear that the burden of justifying the required dedication rests with the city. The Court distinguished between 'generally applicable zoning regulations,' where the burden rests on the landowner challenging the regulation, and 'an adjudicative decision to condition petitioner's application for a building permit on an individual parcel', where the burden rests on the municipality.

In Twin Lakes itself, the Second Department cited Dolan, but nevertheless concluded that the landowner, not the town, bore the burden of proof. To the extent the subdivision regulation process is 'adjudicative', the Second Department clearly applied an incorrect constitutional standard.  Local Law 3 did not provide for a blanket parkland fee at $1500 for each development lot within the town; the fee was imposed only if the planning board required dedication of parkland and determined that landowner should pay a fee in lieu of dedication. Those decisions appear adjudicative in nature. Paradoxically, the town could not have required a blanket fee of $1,500, not because of any constitutional constraint, but because Town Law section 277, as construed in Bayswater, requires an individualized determination!

Conclusion

The combination of constitutional and statutory requirements makes it difficult for New York municipalities to impose parkland impact fees without making findings that support the conclusion that the proposed development creates the need for additional park facilities. The court in Twin Lakes did not give due consideration to the complex statutory and constitutional scheme.