IRVINE, CA-A new US Supreme Court ruling that places significant new limitations on the imposition of monetary exactions in exchange for the issuance of land-use permits in California may cause a backlash of scrutiny among the development community here. As a result of this anticipated scrutiny, local governments that depend on monetary exactions for land-use permits as part of their revenues may suffer from partial loss of these revenues, and more struggles may ensue between developers and permit-issuing agencies.

Last week's ruling in Koontz v. St. Johns River Water Management District is the latest in a series of cases that deal with the Fifth Amendment, which prohibits the government from taking private property without just compensation, Bill Devine, an attorney with law firm Allen Matkins here, tells GlobeSt.com. “The Court sometimes refers to this as the 'unconstitutional doctrine'—when the government is allowing a particular use, one of the conditions of that use cannot be unconstitutional. The Court will look at types of conditions being imposed, land use and the amount someone pays for permits for entitlements to develop that property. Is the local government, in conditioning their approvals, imposing conditions that would result in a violation of the Fifth Amendment?”

Prior Supreme Court decisions related to this matter during the late 1980s and early 1990s, referred to as Nollan/Dolan, ruled that a heightened level of scrutiny applies when a government agency is exacting something from a developer in exchange for a land-use permit. The agency must establish that the there is an essential nexus between what's being exacted and the development's impact, and the exaction or property has to be roughly proportional to the impact that's being created by the project.

In the early 1990s, “California made a distinction that if actual physical property is being exacted by a local government, then the provisions in Nollan/Dolan apply, but if it's a monetary obligation—just requiring fees for impact—then we don't have a heightened level of scrutiny for exactions,” Devine explains.

Later, California adopted its own set of laws to allow for development impactees, AB 1600, which set up the same relationship standard of low-level scrutiny that came out of the earlier cases. “If it was monetary, especially if the city had applied an impacting program, the court would give a low-level review as long as the relationship between fees and impact of the development project was reasonable,” says Devine.

However, the Koontz case ruled that the principles in Nollan/Dolan apply even in situations in which the government exaction is money—it makes no distinction between money and property, which is the key element of the case. Devine says that many other states have applied the principles of Nollan/Dolan across the board; California is one of the states that made the distinction between money and property, so the Koontz ruling challenges AB 1600.

What does this mean for California's development community? “I'm anticipating that there will be a lot more scrutiny given by the development community to any type of monetary exactions,” says Devine. “Developers will be asking of their local governments, 'Are they really justified as to the amount they're imposing on our project? Is our development really creating this impact, and is the amount they're exacting roughly proportionate to the impact our project is having?' This will now be a part of the discussion.”

Given that so many local governments are struggling financially and impact fees are a large part of their revenues, Devine predicts that there will be more of a struggle between developers and local governments because of this ruling. “Housing development has become more expensive because of these impact fees. Are those fees really justifiable because of those impacts or not?”

As GlobeSt.com reported last month, enforcement of California's commercial-building energy-disclosure law, AB 1103, has been delayed until September 1. The law, originally set to go into effect July 1, requires commercial-building owners to disclose a building's historical energy usage prior to selling, leasing, or financing the asset.